From

http://blogs.rhsmith.umd.edu/davidkass/

(4) Looking back at the financial crisis, did you learn anything that you didn’t know before?

WB: Learned how bad things could get. Knew there was a housing bubble, but surprised by the speed at which it spread, the way the dominoes toppled, and the need for the government to act. In September, when Lehman went down, that Sunday, if Ken Lewis (Bank of America) had not bought Merrill Lynch (ML), ML would have gone down on Monday. Everyone was terrified. No one trusted anyone else or even placing their money under a mattress. Berkshire sold a $5 million Treasury Bill in December 2008, due in April 2009, for $5,000,070. The purchaser would get back $5 million at maturity and earn a negative return (losing $70). People didn’t trust each other. Banks didn’t trust each other. Bernanke, Paulson, and Geithner understood that speed was needed. President Bush said the most important 10 words in economic history: “If money doesn’t loosen up, this sucker is going down”. He backed up Paulson. There are certain chairmen, presidents, and Treasury secretaries that might have frozen. If anyone had frozen for a few weeks, it would have been too late. Congress did not get it at first. When they initially voted down TARP, the Dow Jones Industrial Average tumbled 750 points that day, coming close to a financial Armageddon. This was potentially a lot more serious than the 1930’s, although there was a worse social impact at that time. After Lehman failed, money market funds held $3.5 trillion which was equal to one-half domestic deposits at banks. In three days, $175 billion (or 5% of money market funds) was removed from money market accounts. To whom would these funds liquidate assets (commercial paper)? Only the government could have stepped in, which it did. At that time Berkshire had already committed to come up with $6.6 billion to assist Mars in its purchase of Wrigley. He has never seen a panic period like this one. One should buy what you can pay for. If you are smart you do not need to borrow. If you are dumb, you do not know what to do with the amount you borrow.

(5) Does the U.S. have a sustainable competitive advantage versus the emerging countries?

WB: In the 1920’s 32% of Americans worked on farms. Today, that number is 3%. In the 1980’s Americans thought that Germany and Japan would dominate the world’s economies. However, over the next decade the U.S. created 20 million jobs. We have a system that works and encourages creativity. Since 1995, the Internet has changed the world.

(7) In the past you have said your investment philosophy was 85% Graham and 15% Fisher. Has that changed?

WB: Started out looking for cigar butts with one puff left. There were lots available in the 1950’s. That approach does not work well with large amounts of money to invest. His philosophy has shifted slightly more toward Fisher. Berkshire currently has $150 billion in cash and investments. He met Charlie Munger in 1959 who argued for investing in wonderful businesses and sit with them as they get better over time. In 1951 WB picked up the Moody’s Manual for that year and found Western Insurance selling at ½ times earnings. A few years ago someone sent him a book entitled “Korean Stock Market”. He found 15 – 20 stocks selling for 2X earnings. It was like the old days. He has also made mistakes such as his 1968 purchase of Blue Chip Trading Stamps whose sales have dropped from $120 million at its peak to $18,000. Dexter Shoe was another bad business that he bought. You need to get on an 80 mph train that is speeding up.

(9) Question about WB’s ability to evaluate management in place of companies he acquires.WB: In terms of evaluating management, it is very hard to do for public companies. You can look at the record (like baseball). When we buy a business it is for keeps. When someone comes to me and wants to sell a business and I hand him $1 billion, I have to decide if he’s going to have the same energy when he’s working for us as he had when building the business. We do not have any contracts with our managers. In the Fall of 2006 I received a 1 ½ page letter from a guy in Israel. I had not heard of the guy or his company before. He offered to come meet with me. After we met, I handed him $4 billion (Iscar) and was counting on him to run the business the same as before we gave him the money. Want managers to be passionate about their business. You cannot put passion into someone. It’s worked out most of the time. Every now and then we make a mistake. We want people who are in love with their business, not the money. (People who would say: “I’d rather go to work than anything else in the world”.) Our batting average is good and has probably gotten better over time. We are looking for the guy who is still in love with his business and for one reason or another, needs to monetize it. With respect to stocks, we are not interested in meeting with management. We do not want to see their projections. We look into their products and “moats” around the business.

(10) Question about advice in finding a job.

WB: Find the job that you would do if you were independently rich and not getting paid for it. He loves the job he is in. He jumps out of bed and tap dances to work. Upon graduation from Columbia (MBA), he offered to work for Ben Graham for nothing. Ben Graham said he was overpriced. He started selling securities in Omaha for three years. Then he was offered a job with Ben Graham. He never asked what his pay was. He didn’t know until he received his first pay check. Do what makes you tap dance. Take a job until you find the right job. Work for the person you admire most. Don’t wait for the dream job either. You should be close to a dream job 5 years out of school.

(11) What do you do everyday?

WB: He reads a lot, so does Charlie. They have been close friends for 52 years. They disagree, but never have any arguments. He reads books and 10K’s and 10Q’s. He now plays bridge over the Internet 12 hours per week, so he has less time for reading. He also watches YouTube.

(12) Question about China’s policies and impact on its growth.

WB: China changed its system and started to unleash the potential of its 1.2 billion people. In the last 30 years it has built its infrastructure. When forces are working together as they are in China, amazing things happen. The success the Chinese have achieved has reinforced what they are doing. They have come a long way. They have a long way to go. In the U.S. system, the right people are in the right jobs.

(13) Question about the Financial Regulation Bill.WB: We need something that will keep leverage under control. There is a natural tendency in a capitalist system to use leverage. Leverage is dangerous. If the financial regulation bill controls derivatives, it will be good. We also have the wrong incentives. If CEO’s succeed, they get doubly rich. If they fail, they are still rich. If a CEO needs big assistance from the government, then the CEO should go broke. At Berkshire we want a system that if Berkshire goes broke, so do Warren and Charlie. Freddie Mac and Fannie Mae resulted in the greatest losses to taxpayers. They (Fannie and Freddie) were a big part of the problem.

(14) Earlier this month, Bill Gross was quoted as saying June 30 would be D-Day for investors with QE2 going away. What do you think Bernanke should do?

WB: No one could have done better than Bernanke. He (Buffett) would not be buying $20 billion of Treasuries every week as is being done now. In addition to government’s fiscal and monetary policy, capitalism has its own regenerative capacity. We have had 15 recessions in U.S. history. They were called “panics” in the 19^th Century. The regenerative capacity of capitalism was demonstrated before fiscal and monetary policy were introduced. Our current budget deficit represents 10% of GDP. It is the largest it has ever been except for World War II when it equaled 30% of GDP. This led to a vibrant economy and price controls. We are, therefore, experiencing the second greatest stimulus in the history of this country. Monetary policy (stimulus) is not needed now. It is dangerous. The Federal Reserve has its foot to the floor. Bernanke will quit monetary stimulus on June 30. The economy is fine. This expectation is baked in (built into the market).

(15) When you have made a mistake, what steps did you take to determine what went wrong?

WB: His circle of competence is growing over time. When investing in stocks, there are no called strikes. He waits for the pitch he wants. The mistakes he has made resulted from thinking he understood a business when he did not. He prefers to learn from other people’s mistakes (not from his own). On Dexter Shoe, he issued shares in Berkshire that are today worth $3 billion. Dexter Shoe went to zero. He is wrong from time to time, but overall has a good batting average. One should focus on the future. Don’t dwell on mistakes. Do not make a mistake with respect to the person you marry.

(18) Question about oil and the current situation in the Middle East.

WB: The Middle East has been and will continue to be an unstable place. If the supply of oil from Saudi Arabia is disrupted, it will have big consequences. The oil shocks of the 1970’s resulted in oil going from $3 per barrel to $30. We paid a huge tax to OPEC. He expects to see the usage of oil decline in our lifetime (although the current usage of 86 million barrels of oil a day may increase to 100-110 million barrels per day before the decline begins). There are 500,000 oil wells in the U.S., producing an average of only 11 barrels per day. If oil prices have a sustained increase, there will be a windfall profits tax in the U.S. Therefore, higher oil prices are not a signal to buy oil stocks.

(21) Question about income inequality in the U.S.

WB: During recent years of economic growth in the U.S., income inequality has grown. It’s going to exist in capitalism and it should. A society with equality and no production would not be good. You should think of output, providing incentives to people, an abundant society, a market system. In the U.S. per capita GDP equals $47,000. We want freedom from fear of not receiving health care and not starving to death. An abundant society will take care of people that get a lousy ticket. Inequality of the tickets is what you want to deal with. We are working toward that in this society. Social Security is an attempt at that in our society. In the last 20 years we have been moving in the wrong direction. According to the IRS, in 1992 the 400 highest incomes averaged $45 million. In 2009, they averaged $350 million. The rest of the U.S. went no place over these years. The average tax rate for the highest income earners has declined from 28% down to 16% over this time period. His average tax rate is 16% on $16 million of income, largely from dividends and capital gains which are taxed at 15%. He has no tax shelters and does not consult tax advisers. He credits George Bush and the U.S. Congress. We have moved away from equality to taking care of the rich. If you and a twin were competing for a ticket in the U.S. or Bangladesh (with no income tax), you might bid 70% – 80% (of future wealth) to get the U.S. ticket. He is lucky that he is alive now rather than thousands of years ago. Otherwise he would have been some animal’s lunch. It would not have done him any good then to say “I allocate capital”. We should have a society that will incentivize people to work hard and the ticket you pick doesn’t destine you for a poor outcome.

Highlights of Warren Buffett’s Interview on CNBC – March 2, 2011

Warren Buffett appeared for three hours this morning on CNBC (6 a.m. – 9 a.m. EST) and answered questions from both CNBC staff and viewers. His responses to these questions included:

(1) The recent rise in oil prices will have no impact on Berkshire Hathaway owned GEICO and its large investment in Coca-Cola five years from now. He does not know where oil prices will be in the near future. Demand for oil is inelastic, so small interruptions can lead to a big change in price. Markets anticipate this.

(2) The American economic system works. Once in awhile the economy falls off the track as is did in the Fall 2008. Berkshire’s businesses are now inching forward. Its TTI electronic components business is booming. Its railroad (Burlington Northern) has recovered 60% from its bottom and is improving each quarter. January was a record month for its Iscar machine tools. However, its businesses depending on residential construction are not moving. 2010 was a better year for Berkshire than 2009, with Berkshire doing some net new hiring. By election day in November 2012, the unemployment rate will be in the low 7% range (vs. 9% now). Housing will be better in one year. The demand for housing is increasing from new household formations, while the supply of new housing is slowly decreasing from current under building, which will help offset the previous oversupply.

(3) Buffett does not like short term or long term bonds as investments at current interest rates. The U.S. is currently running a budget deficit equalling 10% of GDP. This is providing a large fiscal stimulus. Commodities are for speculators who are betting that their prices will go up and hope that someone will pay them a higher price later. On the other hand, assets such as rental property or stocks can be expected to earn income over time. If the stock market were to close for 10 years, he would not worry about his investments in Coca-Cola or Wells Fargo since they will continue to produce over time. The current value of all of the gold in the world equals $7 trillion, which approximates 1/3 of the value of all stocks in the U.S., or equal in value to all of the farmland in the U.S. (1/2 of the land in the U.S.) and 7 ExxonMobils plus $1 trillion in walk around money. Buffett prefers the farmland and the 7 ExxonMobils to the gold.

(4) Stocks still look attractive vs. most assets, although they are not as cheap as they were. It is harder to make deals now. Buffett had an iron in the fire a couple of days ago, but someone else beat him out. There is nothing of high probability at the moment. The deal he lost out on was a “zebra”, not the “elephant” he referred to in his annual report. His “itchy finger” in his annual report was a free advertisement. Any acquisition he makes must be at a good price so he will get his moneysworth from earnings. He is more likely to pay a fair price for a privately owned business than he would after paying a 20% premium for a publicly traded company. Mars (candy company) is a wonderful business but Buffett is currently partners with Mars with respect to its Wrigley’s subsidiary. If private owners want to sell their business to Buffett (and he wants to buy it), he will advise them to keep it. The money the private owners will collect cannot be invested in better businesses. But sometimes there are tax or family issues that would lead to the sale. A good business should not be sold just to get money.

(6) When he bought Burlington Northern, he sold his shares in Union Pacific and Norfolk and Southern railroads. He did not have to sell — it was a mistake. He was planning to buy more of those shares prior to the acquisition. He prefers railroads in the west such as Burlington Northern and Union Pacific. Managers of Burlington Northern are now happy that they are owned by Berkshire, in part because they no longer have to spend 20% of their time talking to analysts.

(8) Berkshire’s investee BYD’s success depends on it succeeding in the field of battery technology. It is a tough competitive game, but Charlie Munger thinks BYD will be the winner. Buffett would not answer the question as to whether he would buy more shares (he owns 10%) at the current low price.

(9) Buffett likes to act fast on acquisitions. If a deal is offered to him on a Friday, he wants it done by Sunday. Burlington Northern underperformed the week before he agreed to acquire the 77% of shares he did not already own. Otherwise people talk and the share price runs up. (He was referring to the recent SEC charge against a Goldman Sachs director who is alleged to have leaked information about Berkshire’s planned investment in Goldman Sachs in October , 2008.)

(14) When Lou Simpson retired last year, Berkshire sold all of his stocks. Todd Combs will be selecting his own stocks. Neither Combs nor Buffett wish to inherit someone else’s investment decisions. Bank of America and Nike were Lou Simpson’s picks.

(17) The CEO of a company should be its chief risk officer and should go away poor if he/she has ruined his/her company and harmed the country. Instead, failed CEO’s have walked away with hundreds of millions. Incentives are very important. They can help set the right limits on leverage.

(19) With respect to “too big to fail”, shareholders of Citigroup and Wachovia lost a lot.

(20) Equities will outperform short term and long term fixed income securities over 10, 20, and 30 years. Investors should not buy stocks with borrowed money.

(1) A discussion of how he calculates intrinsic value. (He considers book value to be an “understated proxy for intrinsic value”.) There are three components to this calculation. The first component is the market value of Berkshire’s investments in stocks, bonds, and cash equivalents ($158 billion at yearend). Berkshire’s insurance float (premiums paid to Berkshire that have not yet been paid out to cover claims) funds $66 billion of its investments. Berkshire’s second component of intrinsic value is earnings that come from sources other than investments and insurance underwriting. These earnings are delivered by Berkshire’s 68 non-insurance companies. The third, and more subjective component to intrinsic value, is the efficacy with which retained earnings will be deployed in the future.

(5) Lou Simpson retired at yearend at age 74 — “an age Charlie and I regard as appropriate for trainees at Berkshire”. (Buffett is 80 years old, and Munger is 87.)

Buffett reported Berkshire’s largest common stock holdings (with a market value of over $1 billion) as of yearend as follows (in descending order by value):

(1) Coca-Cola ($13.2 billion) – 21.4% of common stock holdings
(2) Wells Fargo ($11.1 billion) – 18.1%
(3) American Express ($6.5 billion)– 10.6%
(4) Procter $ Gamble ($4.7 billion) – 7.6%
(5) Kraft Foods ($3.1 billion) – 5.0%
(6) Munich Re ($2.9 billion) – 4.8%
(7) Johnson & Johnson ($2.8 billion) — 4.5%
(8) U.S. Bancorp ($2.1 billion) – 3.4%
(9) Wal-Mart ($2.1 billion) – 3.4%
(10) ConocoPhillips ($2.0 billion) – 3.2%
(11) POSCO ($1.7 billion) – 2.8%
(12) Sanofi-Aventis ($1.7 billion)– 2.7%
(13) Tesco plc ($1.6 billion) – 2.6%
(14) BYD ($1.2 billion) – 1.9%
Others ($5.0 billion) – 8.1%
Total ($61.5 billion) – 100%

Buffett’s entire Letter to Shareholders is available at:

http://www.berkshirehathaway.com/letters/2010ltr.pdf

Top 50 Blogs By Accounting Professors, Students and Professionals

February 3rd, 2011 by dkass under Uncategorized. 1 Comment.

My “Dr. David Kass” blog is featured in an article on the Top 50 Blogs By Accounting Professors, Students, and Professionals.

This article is available at:

http://onlineaccountingcolleges.com/2011/top-50-blogs-by-accounting-professors-students-and-professionals/

best financial blogs

http://www.time.com/time/specials/packages/completelist/0,29569,2057116,00.html

Sighting of Charlie - from chuck's angels.

http://boards.fool.com/daily-journal-meeting-notes-29076851.aspx?sort=postdate

- Question #1 got right to the point - what will happen to the Wesco meetings now that WSC has been fully absorbed by Berkshire? In honor of the "hard core groupies" Munger said that he would continue to hold the Wesco meeting and that he would probably "pay for it out of my own pocket." He further added that this would probably be for 1-2 more years.

- On ratings agencies, "They have disgraced themselves," They made easy decisions to enrich themselves, Law schools and business schools taught the wrong stuff and it became accepted dogma, It was CRAZY to rate all of those things AAA. But - as bad as it is, it's hard to develop a better system, It worked for 130 years and all things have a lifespan, How else would you do it? All human systems are gamed, Do you want the (govt controlled) SEC to make the ratings? Everybody failed, "Most of what I'm talking about is not going to be fixed." He mentioned that last evening he ate dinner with Chief Justice Kennedy and that there was concern that there is deep resentment across society that the elites haven't paid a price for all of the wrongs... told quip about King Lear.

- A guy pestered him about his dog-eared page. Munger said that he grew up with the tables and that they haven't changed. The guy persisted - what's the number? 10? 12? Munger shot back that "I want to know the present value of something so I use my table - it's just not complicated. A lot of people DO use complicated stuff - they're the ones who got us into trouble."

- It's hard to get a man to believe X when his living comes from believing in Y.

- Too much dumb bureaucracy, Hard to have a smart one,

- On housing. "When you get into trouble on a $1000 a month mortgage then Grandma and family can help out. When the mortgage is sizeable then Grandma can't help - you're on your own."

ed note - obviously he's talking about all the diverted land resources which shrink the food supply and cause massive inflation across food commodities (note - for a first hand example of social upheaval caused in part by massive food inflation see all after "Egypt")

As for govt and printing money and debasing the currency? Inflation is "The glorious hand of government."

- It's unbelievable but Posco went to India and proposed building a plant, PKX has a unique method to make steel from lesser quality that would be perfect for India. It's now 6 years later and they are still working on the permit. Unbelievably stupid. "I'd rather invest where we don't have these problems."

- Everybody in a financial institution trading operation will go plum
crazy. An irresponsible system. They want to do it to match others' earnings.

- A man will believe what he wants to believe.

- They specialize in stupid things at Law School

- Question stating that in years past management earned 40-1 more than the working class. Today it's 1100-1 (ed. I hope I'm right about that figure). Munger refers to Aristotle - we're asking for a lot of problems.

- General Re - just got sloppy. Cleaning that up was a hell of a lot of difficult work. We just missed it. It had such a good reputation and had been going for a long time. Over time you can get a lot of deterioration in a culture. Costco has great culture - makes it hard for people to game the system. At least in the end we did fix GRN.

- A man running a small business knew Wal Mart was coming. He sold out prior to their arrival. Very smart. He knew the landscape and reality.

ed. note - OK BYD nuts. Recall bYD's problems with their plant not having proper permissions and they got into trouble with Chinese govt. Recall how this was a sure sign that doing business in China would creat problems for BYD over time.

- On BYD - The province gave BYD the right to build and the province did not gain requisite approval from federal government. ByD and the province got fined. ByD about $400K (or peanuts if you're counting at home). "My guess is that permission will be granted later this year." BYD is a Chinese hero. Head of BYD is a former peasant - a communist hero.

- California. Thinks Jerry Brown is the best governor option. If bad news is to be delivered it's better that a Democrat do the deed in California. It adds more credibility that way and is easier for the liberal CA public to swallow..

- Talked of immoral insanity of police pensions where a retiring guy can put in 1500 overtime hours in his last year and spike his last takehome pay which then gives him huge retirement check and where he can earn more in retirement than his last salary - "Insane."

- Singapore is the best govt ever. They came from nowhere. They built on swamp a great civilization. It's an example of a govt that does things right.

- Roughlyright pointed out that Daily Journal portfolio perfectly matched Wells Fargo and that therefore now we know that munger must have bought Wells with the entire portfolio. Munger said that that was mostly right - they have a little that's not WFC. When asked why the DJ purchased it a a much better price than say Wesco Munger said that it was all accidental - a circumstance of reality - that the DJ needed to hold cash longer to ensure survival of the business and they got lucky on timing.

- People don't realize how close the system came to implosion. GE would have gone bust without government. Govt HAD to save GE. (ed. note - I took this to mean that it's because it's an American icon that is a core part of our society, Not becaue it was systemic risk caused by GE).

- "We don't CARE if we are a digit less in 20 years, If we used leverage like Murdoch Berkshire could own the world. We don't sweat blood like Murdoch either. We sleep well. Murdoch really had to sweat."

-A mistake to let Lehman go under? "Gotta let someone go. Lehman at the top had a disgusting culture. I would have picked Lehman to go under." (ed note - is that funny or what!)

- This was as close to chaos as we want to come - the idea that we want massive chaos in order to profit is wrong.

- We LOVE the railroad business. This from two kids who had model trains.

- Passanger trains. "Obama is out of his mind." makes sense for China but not for us. It would take a whole new track system. Exceptionally stupid. Obama hasn't had a lot of business training.

- "We love our railroad." There are now 80% fewer employees and it's safer, more efficient, profitable - a very efficient place.

- never in my life have I seen more young, rich, smart people holding so much cash - like we do at the Daily Journal. It's wise. Bill Gross's "new normal" is modest lower returns. in a period of modest returns it shouldn't make any difference. Why SHOULD life be easy? People destroy themselves in good times too.

http://www.chron.com/disp/story.mpl/business/7323841.html

During the Q&A, Cinquegrana asked Buffett about his recent selection of a relatively unknown successor candidate, 39-year-old Todd Combs.

Not just money

Buffett said he wanted someone interested in more than just making money.

"That's why he goes for small businesses that started with nothing and grew. That's what appeals to him," Cinquegrana said. "He wants the owner of the business to stay there, not go in there and replace everyone once it grows."

Another UH participant, MBA student Aimee Langlinais, said she was impressed with Buffett's admonishment to invest in people, not businesses.

"I think that entrepreneurs should always remember that focusing on the best interest of the people they affect every day, whether that be their employees, shareholders or the community, will drive profits," Langlinais said. "What they decide to do with those profits speaks to their character."

With a net worth estimated at $47 billion, Buffett repeated his recent mantra to students - that people with more than $1 billion in net worth should donate at least half of their money to charity.

http://www.signonsandiego.com/news/2010/oct/30/ucsd-students-meet-with-warren-buffett/

UCSD students meet with Warren Buffett

Like others in group, Stone was struck that Buffett’s advice did not focus narrowly on business.

“He said, first, to recognize the good qualities you see in other people and adopt them for yourself,” she said. “He’s very bullish on the Chinese economy. But what he emphasized was that doing what you like is the most important thing.” “He told them: ‘If you want to be successful, be the type of person other people want to work with.’ ”

From http://www.inlikeme.com/advice/warren-buffet-offers-advice-students.html

At a time when many college graduates face uncertain futures and are struggling to find jobs, Buffett advised students that, "investing in yourself is the best thing you can do -- anything that improves your own talents.” He advised parents that, “investing in your children is, in some ways, investing in yourself." “No matter what happens in the economy, if you have true talent yourself, and you have maximized your talent, you have a terrific asset."

Speaking with students at Rice's Graduate School of Business, he didn't give out stock tips, but offered the following: “unconditional love is more valuable than any amount of wealth.” He urged the students to surround themselves with people who love them, and to give love in return. When asked what he thought about the correlation between wealth and happiness, he explained that “success is getting what you want, and happiness is wanting what you get.”

When speaking at Columbia University, Warren Buffett said: “find what turns you on…. do what you would do if … the money meant nothing to you… You’ll have more fun and be more successful”.

Speaking with Emory University students he offered the following, “I enjoy what I do, I tap dance to work every day. I work with people I love, doing what I love. I spend my time thinking about the future, not the past. The future is exciting. We’re all successful, intelligent, and educated. To focus on what you don’t have is a terrible mistake.”

At Notre Dame, Buffett told students that taking a Dale Carnegie public speaking course was extremely valuable and that the ability to communicate is a very valuable skill that played a critical role in his success.

On a more general note, Buffett counseled an MBA student: "Be a nice person. It's so simple that it's almost too obvious to notice. Look around at the people you like. Isn't it a logical assumption that if you like traits in other people, then other people would like you if you developed those same traits?"

When offering students life and career advice, Buffett has stressed the importance of pursuing work that one is passionate about; being patient; reading, thinking and learning; and working smart to reach one’s potential.

Buffet has encouraged students to use all their horsepower. “How big is your engine, and how efficiently do you put it to work?” Warren Buffett suggests that many people have “400 horsepower engines, but 100 horsepower of output”. According to Buffet, the person who gets full output from a 200-horse-power engine is a lot better off. Those with a modicum of intelligence can be very successful.

http://www.chron.com/disp/story.mpl/business/6732239.html

The Oracle of Omaha didn't give out stock tips for the 27 students from Rice's Jesse H. Jones Graduate School of Business, but offered advice several students found life-changing: He called unconditional love more valuable than any amount of wealth.

“He told us that success is getting what you want, and happiness is wanting what you get,” she said. “He said pretty much just be happy with what you have, and don't let it get to you.”

He also urged the students to surround themselves with people who love them, and to give love in return.

Buffett also doled out some financial wisdom in response to questions.

Goetgeluk asked what Buffett thought of the peak oil theory — that oil production has peaked and will only decline in the future — and what he believed would replace carbon fuel.

Buffett told him that in 20 years, he believes all the cars on the road will be electric. He's already invested in a Chinese company working on the technology to make it happen.

He told students not to see the global economy as an “us against them” struggle: if China does well, or Russia, it won't make America any less prosperous.

“One thing he said was that he really believes the U.S. economy will recover and be strong for decades to come,” Goetgeluk said. “He said America has a great system and it has always worked, and it will keep working in the future.

From "Value Investing: From Graham to Buffett and Beyond" - Greenwald, Kahn, Sonkin, Van Biema.

Investment Universe

government/federal debt

state and municipal bonds, bank savings, CDs, commodities, partnership in an enterprise, derivatives, mutual funds, stock, corporate bond, real estate. Spinoff warrants, preferred shares,

convertibles

Many funds cannot invest in small companies, so shares in smaller companies are cheaper.

Spin-offs are a wonderful opportunity for investors who are not constrained by questions of corporate size.

The end of the year is a good time to pick up stocks that window-dressing managers have tossed out to avoid listing in the year-end report.

If the industry is in serious decline, then the asset values of the company should be based on what they will bring in liquidation.

On the other hand, if the industry is stable or growing, then the assets in use will need to be reproduced as they wear out. These assets should be valued at their reproduction cost.

Inventory valuation : for a manufacturing firm, the more commodity-like the inventory, the less the discount necessary to sell it.

The would be competitor will have to spend heavily on research, advertising or customer relation in order to reproduce what we call hidden assets.

We need to add some multiple of selling, general and administrative expenses in most cases between 1-3 year's worth to reproduction cost of the assets

Its good to specialize in complex companies that nauseate most investors.

It is a truth universally acknowledged that all sensible people abhor commodity businesses.

For the incumbent to have a competitive advantage, it must have access to customers that a potential entrant cannot match.

If the cost of searching for an alternative to an existing supplier is high, then new entrants have a difficult time attracting customers who are not actually dissatisfied with their current arrangements. e.g. residential insurance market.

High switching costs are the most common cause of customer captivity. e.g. when one company provides software systems for payroll, benefits, HR etc.

Captive customers are the source of competitive advantages :

By raising switching costs (adding features/services)

Consumer franchises that are sustainable over decades must have a competitive advantage in recruiting new customers as well as retaining existing ones.

To sum up, the value of the franchise is very important in modern value investing. A franchise only exists where a firm benefits from barriers to entry that keep out potential competitors or insure that if they choose to enter, they will operate at a competitive disadvantage relative to the incumbents.

Brands are identifiable product images that exist in the minds of consumers and affect their behavior in ways beneficial to the company that owns the brand.

The history of the luxury car market suggests that this kind of mediated pricing power does not create a significant barrier to entry by itself that would protect Daimler from the ravages of competition.

Why not? As long as competitors have equal access to the means for creating a premium image-advertising, endorsements, PR, high quality, innovative technology, luxurious dealerships, extraordinary after-sales and high prices-at costs equivalent to that of Daimler, they will enter this profitable market. The Mercedes-Benz brand does not maintain itself ; it needs to be replenished with fresh advertising and image-burnishing expenses. This drives up costs for Daimler making it more costly and consequently less profitable for Daimler to maintain the brand. The brand may be an essential element of the perceived value of the product but does not construct barriers to entry.

The aspects of consumer behavior that do create franchise value are : HABIT, SEARCH COSTS, SWITCHING COSTS. - as leading to customer captivity. Also value of brands us greatly enhanced by economies of scale. e.g. Intel Inside is weak brand but when accompanied by economies of scale, even a weak brand becomes an essential part of a powerful franchise.

We estimate that the cash most businesses need to run their operations amounts to 1% of sales.

Continue from Part III. (Value Investing in Practice)

From "The Element" Ken Robinson

• When people are in the zone, they align naturally with a way of thinking that works best for them. There is a level of effortlessness and you simply don't feel time the same way. Everything comes more easily.
• One of the strongest signs of being in the zone is a sense of freedom and authenticity. When we are doing something that we love and are naturally good at, we are much more likely to feel centered in our true sense of self - to be who we truly feel we are.
• Doing the thing you love is no guarantee that you'll be in the zone every time. Sometimes the mood isn't right, the time is wrong and ideas just don't flow. "When its not going well, I put it away and try again tomorrow or the next day. What I don't do is watch other people's work that may make me feel worse".
• My definition of creativity is : "the process of having original ideas that have value". Imagination can be entirely internal. You couldn't be creative unless you actually did something.
• When they are very young, kids aren't particularly worried about being wrong. They'll just have a go at it and see how things turn out. What is true is that if you're not prepared to be wrong, you'll never come up with anything original.

My fave iphone quotes

* If I only had an hour to shop down a tree, I would spend the first 45 minutes sharpening my axe.

* Quarrel not at all. No man resolved to make the most of himself can spare time for personal contention. - Abraham Lincoln

* I have learned not to worry about love but to honor its coming with all my heart. Alize Walker

* Well done is better than well said

* Let no one who loves be called unhappy. for even love unreturned has its rainbow

* Respect a man, he will do more

* How much time he saves who does not look to see what his neighbor says or does or thinks -Marcus Aurelius

* What other people think about me is not my business

*

*

* Try not to become a man of success, but rather try to become a man of value

* The pursuit of knowledge for its own sake, an almost fanatical love of justice, and the desire for personal independence - these are the features of Jewish tradition that make me thank my stars that I belong to it - Einstein

There is a certain majesty in simplicity which is far above all the quaintness of wit. - Alex pope

* Action may not always bring happiness, but there is no happiness without action. -Disraeli

* Cleanliness and order are not matters of instinct, they are matters of education and like most great things, you must cultivate a taste for them. Disraeli

* Sir. I say that justice is truth in action. Disraeli

Friendship is born when one person says to another : "What! You too? I thought I was the only one" CS Lewis

He approaches nearest to gods who knows how to be silent, even though he is in the right. Cato the Elder

* A big man is one who makes us feel bigger when we are with him.

* The ancient Greek definition of happiness was the full use of your powers along the lines

of excellence.

* Never express yourself more clearly than you are able to think.

* Nothing in the affairs of men is worthy of great anxiety.

*

* An artist cannot do anything slovenly. Jane Austen

I love the deep quiet in which I live and grow against the world and harvest what they cannot take from me by fire or sword. Goethe

Just trust yourself and you will then know how to live. Goethe.

Where can I find a man governed by reason instead of habits and urges - Gibran

A purpose of human life, is to love whoever is around to be loved. Kurt Vonnegut

* When it is not necessary to make a decision, it is necessary not to make a decision. Lord Falkland.

* No man enjoys the true taste of life, but he who is ready and willing to quit it. Seneca

No one is safe from slander. The best way us to pay no attention to it, but live in innocence and let the world talk. Moliere.

The whole point of being alive is to evolve into the complete person you were intended to be. Oprah

A chief event in which we have encountered a mind that startles us. Ralph Waldo Emerson.

* We generate our own environment. We get exactly what we deserve. How can we rest the life we've created for ourselves? Who's to blame, who's to credit but us? Who can change it anytime we wish, but us? Richard Bach, One

* To be what we are, and to become what we are capable of becoming is the only end of life. RL Stevenson.

* Be silent as to services you have rendered, but speak of favours you have received. Seneca

The good befriend themselves - Sophocles

Friends are those rare people who ask how you are and then wait for the answer.

* Men judge us by the success of our efforts. God looks at the efforts themselves.

* There is only one way to happiness and that is to cease worrying about things which

are beyond the power of our will.

* The real service a friend can really render is to keep up your curage by holding up to

you a mirror is which you can see a noble image of yourself.

• “He that rises late must trot all day.“ – Benjamin Franklin

• “Is what I’m doing or about to do getting us closer to our objective?“ – Robert Townsend
• “What comes first, the compass or the clock? Before one can truly manage time (the clock), it is important to know where you are going, what your priorities and goals are, in which direction you are headed (the compass). Where you are headed is more important than how fast you are going. Rather than always focusing on what’s urgent, learn to focus on what is really important – Unknown
• “We realize our dilemma goes deeper than shortage of time; it is basically a problem of priorities. We confess, we have left undone those things that ought to have done; and we have done those things which we ought not to have done.“ – Charles E. Hummel
• “Review our priorities, ask the question; what’s the best use of our time right now?“ – Alan Lakein

• “To save time is to lengthen life.“ – Unknown
• “Until we can manage time, we can manage nothing else.“ – Peter F. Drucker
• 
  
• “If you spend too much time thinking about a thing, you’ll never get it done.“ – Bruce Lee
• ““To think too long about doing a thing often becomes its undoing.“ – Eva Young
  “Never leave ’till tomorrow which you can do today.“ – Benjamin Franklin
  “Better three hours too soon, than one minute too late.“ – William Shakespeare
  “Don’t wait. The time will never be just right.“ – Napolean Hill
  “Make measurable progress in reasonable time.“ – Jim Rohn
  
  “The less one has to do, the less time one finds to do it in.“ – Lord Chesterfield
  “So much of our time is spent in preparation, so much in routine, and so much in retrospect, that the amount of each person’s genius is confined to a very few hours.“ – Ralph Waldo Emerson
  “Don’t watch the clock; do what it does. Keep going.“ – Samuel Levenson
  “One always has time enough, if one will apply it well.“ – Johann Wolfgang Von Goethe
  “Take care of the minutes and the hours will take care of themselves.“ – Lord Chesterfield
  “Determine never to be idle. No person will have occasion to complain of the want of time who never loses any. It is wonderful how much can be done if we are always doing.“ – Thomas Jefferson
  “Well arranged time is the surest mark of a well arranged mind. – Pitman
  “A wise person does at once, what a fool does at last. Both do the same thing; only at different times.“ – Baltasar Gracian
  “Time spent in getting even would be better spent in getting ahead.“ – Unknown

From "the double comfort safari club" Mccall Smith

He paused. It was necessary, he felt, to order the mind when one was about to think something profound.

That was the way the world was; it was composed of a few almost perfect people (ourselves); then there were a good many people who generally did their best but were not all that perfect (our friends and colleagues); and finally there wetre a few other nasty ones. The last group was, thankfully, very small

Spaniards want to rechristen Paul the octopus as Pablo
Indo-Asian News Service
Potchefstroom

The Spanish team has fallen in love with Paul the octopus after it predicted that Spain will beat the Netherlands in the World Cup final.
All of Paul's predictions have been true in this World Cup, bestowing international fame on the 'psychic' sea creature.
Spain's defensive midfielder Sergio Busquets said Friday that the Spaniards are in love with the octopus and and out of gratitude they want to re-christen it Pablo.
"We guess it is a Spanish octopus. We are in love with it and want to name it Pablo," said Busquets.
Paul will be hoping to keep a perfect record for South Africa 2010, having correctly predicted four Germany victories and two losses in the tournament. Paul, at the Oberhausen Sea Life aquarium in Germany, is now hated by the Germans after predicting Spain's victory over Germany in the semifinal.

Paul first shot into limelight during the 2008 European Championship during which his five out of six games involving Germany were proved correct. But in this World Cup Paul has made international headlines.
So much so that Spanish Prime Minister Jose Luis Rodriguez Zapatero is worried about the safety of "El Pulpo Paul," as he's known in Spain, and has offered Paul protection after its semifinal predictions were proved right.

Mr. Klarman is president of the Baupost Group, an investment firm in Boston that manages $22 billion. His three private partnerships have returned an annual average of around 19% since inception in 1983—and nearly 17% annually over the past decade, as stocks went nowhere.

But the professorial Mr. Klarman speaks in public about as often as the Himalayan yeti. He made an exception last Tuesday, when I interviewed him in front of a standing-room-only crowd of 1,600 financial analysts at the CFA Institute annual meeting in Boston. He then made another exception, speaking with me over the phone later to clarify points that he feared had been misconstrued.

Mr. Klarman specializes in buying securities that nauseate other investors. As the credit crisis exploded, he put more than a third of his assets into high-yield bonds and mortgage-related securities.

Some members of the audience gasped audibly when Mr. Klarman said, "The government is now in the business of giving bad advice." Later, he got more specific: "By holding interest rates at zero, the government is basically tricking the population into going long on just about every kind of security except cash, at the price of almost certainly not getting an adequate return for the risks they are running. People can't stand earning 0% on their money, so the government is forcing everyone in the investing public to speculate."

"We didn't get the value out of this crisis that we should have," Mr. Klarman told the audience. "For our parents or grandparents, it was awful to have had a Great Depression. But it was in some ways helpful to carry a Depression mentality throughout their later lives, because it meant they were thrifty with their money and prudent in their investment decisions." He added: "All we got out of this crisis was a Really Bad Couple of Weeks mentality."

You could have heard a pin drop as Mr. Klarman proclaimed, "I am more worried about the world, more broadly, than I ever have been in my career." That's because you can make good investing decisions and still end up with bad results if you reap your profits in currencies that do not hold their purchasing power, he explained.

"Will money be worth anything," asked Mr. Klarman, "if governments keep intervening anytime there's a crisis to prop things up?"

To protect against that "tail risk," said Mr. Klarman, Baupost is buying "way out-of-the-money puts on bonds"—options that have no value unless Treasury bonds plummet. "It's cheap disaster insurance for five years out," he said.

Later, I asked Mr. Klarman what he would suggest for smaller investors who share his worries.

"All the obvious hedges"—commodities and foreign currencies, for example—"are already extremely expensive," he warned.

Especially gold. "Near its all-time high, it's a very hard moment to recommend gold," said Mr. Klarman.

Mr. Klarman pointed out that his own ideas "on bottom-up opportunities in undervalued securities are more likely to be accurate than my top-down views on what's going to happen in the world at large."

And, said Mr. Klarman, one of the best ways to protect against a decline in purchasing power is to buy whatever is "out of favor, loathed and despised." So forget about gold or other trendy hedges. Instead, wait patiently for markets—European stocks, perhaps—to get so cheap that they turn most investors' stomachs. Then you can pounce. As Mr. Klarman put it, "Sometimes, when you can't figure out a good defense, the best thing to do is to go on offense."

Jason Zweig at mailto:intelligentinvestor@wsj.com;

Get a good read on the market: Pick up a book

By Andrew Feinberg
Sunday, June 13, 2010; G03

The best investors read all the time. As Berkshire Hathaway vice chairman Charlie Munger has said in assessing the success of his sidekick, Warren Buffett: "If you want to be an outlier in achievement, just sit on your ass and read most of your life."

Billionaire hedge-fund manager Bill Ackman loves to read, too, according to "Confidence Game," a fine new book about his ultimately correct bet against the shares of bond insurer MBIA. In the book, one of his best friends describes a week spent at a beach house with Ackman and his family: "Bill did what he always did on vacation" -- he read financial statements.

Why it helps. You don't have to be a compulsive consumer of 10-Ks to improve your investment performance (although the more you know about the stocks you own, the better you should do).

In my view, reading offers investors three distinct benefits. First, it crowds out the TV noise. The folks on CNBC's Fast Money may be smart, but their Whac-A-Mole approach always makes you feel as if you should be doing something -- anything -- to make a quick buck. Not a good attitude for a successful long-term investor. Second, reading helps you develop all the qualities that go into successful investing. Third, reading can give you specific investment ideas. But don't become a voracious reader to finance a Caribbean spree. You read not to make a quick killing but to learn more about the investing process and the world around you.

So where do you start? My must-read list includes wonderful books by Benjamin Graham ("The Intelligent Investor"), Seth Klarman (the hard-to-get "Margin of Safety"), Joel Greenblatt ("You Can Be a Stock Market Genius") and Philip Fisher ("Common Stocks" and "Uncommon Profits"). Michael Lewis's new book, "The Big Short," offers a terrific peek into the minds of some smart, iconoclastic investors.

But books aren't enough. You need to understand the present, too. By far the best investment publication available today, for both the astuteness of its stock picks and the depth of its study of the investment process, is the Value Investor Insight newsletter (www.valueinvestorinsight.com; $349 a year for 12 issues). I devour my monthly copy as soon as it arrives.

The next essential read is the monthly letter from Howard Marks, chairman of Oaktree Capital Management (http://www.oaktreecapital.com). Marks is a more philosophical version of Buffett, a great investor who always makes you think. In a recent missive, Marks observed that stock-market bulls were, in effect, betting that Congress would be able to cut spending. He was dubious that our elected leaders would succeed. I also find valuable the monthly comments of Bill Gross (http://www.pimco.com), the quarterly letters of Jeremy Grantham (http://www.gmo.com) and the daily commentary on RealMoney Silver (http://www.thestreet.com; $900 a year).

Most of the time, reading leads to contemplation, which keeps you from acting. That's a good thing. Most investors are too active for their own good. Having a solid background in investing history and, in particular, in value investing (the approach that works best over time) can be especially helpful at market extremes. If I had read less, I would not have been so quick to sell technology in early 2000, near the peak of the bubble, or dive into bank stocks at the market lows in March 2009.

- Kiplinger's Personal Finance

Lao Tzu quotes

• A leader is best when people barely know he exists, when his work is done, his aim fulfilled, they will say: we did it ourselves.
• A scholar who cherishes the love of comfort is not fit to be deemed a scholar.
• An ant on the move does more than a dozing ox.
• Be Content with what you have; rejoice in the way things are. When you realize there is nothing lacking, the whole world belongs to you.
• Being deeply loved by someone gives you strength, while loving someone deeply gives you courage.
• By letting it go it all gets done. The world is won by those who let it go. But when you try and try. The world is beyond the winning.
• Do the difficult things while they are easy and do the great things while they are small. A journey of a thousand miles must begin with a single step.
• He who obtains has little. He who scatters has much.
• He who talks more is sooner exhausted.
• Health is the greatest possession. Contentment is the greatest treasure. Confidence is the greatest friend. Non-being is the greatest joy.
• I have just three things to teach: simplicity, patience, compassion. These three are your greatest treasures.
• If you realize that all things change, there is nothing you will try to hold on to.
• If you would take, you must first give, this is the beginning of intelligence.
• In dwelling, live close to the ground. In thinking, keep to the simple. In conflict, be fair and generous. In governing, don't try to control. In work, do what you enjoy. In family life, be completely present.
• It is better to do one's own duty, however defective it may be, than to follow the duty of another, however well one may perform it. He who does his duty as his own nature reveals it, never sins.
• Kindness in words creates confidence. Kindness in thinking creates profoundness. Kindness in giving creates love.
• Manifest plainness, embrace simplicity, reduce selfishness, have few desires.
• Nature does not hurry, yet everything is accomplished.
• Respond intelligently even to unintelligent treatment.
• Silence is a source of great strength.
• The Way of the sage is to act but not to compete.
• To the mind that is still, the whole universe surrenders.
• Violence, even well intentioned, always rebounds upon oneself.
• When I let go of what I am, I become what I might be.
• When right conduct is lost, expedience appears. Expediency is the mere shadow of right and truth; it is the beginning of disorder.
• When you are content to be simply yourself and don't compare or compete, everybody will respect you.

Marie Curie

• There are sadistic scientists who hurry to hunt down errors instead of establishing the truth.

Albert Einstein

• Nothing is more destructive of respect for the government and the law of the land than passing laws which cannot be enforced.
• Once we accept our limits, we go beyond them.
• The true sign of intelligence is not knowledge but imagination.
• If you can't explain it simply, you don't understand it well enough.
• Life is like riding a bicycle. To keep your balance you must keep moving.

Benjamin Disraeli

• Justice is truth in action.

JH again

"... We need to build a sense of responsibility, a sense of pride.
We need to be ashamed to check in careless changes.
Careful code needs lots of thinking, lots of tinkering with the fix,
doing a few things with it that are a bit on the periphery,
just to make sure. Don't commit until you are comfortable with it,
until the little nagging doubts are gone.
The pressure to chalk up the next commit suppresses all that quality
time you could spend with your code.
The result is loose ends, one fix/two breaks, etc."

The Loneliest Job" Nancy Gibbs - Time Jan 25 2010.

Eisenhower recalled how as a general, before D-Day, he had to decide whether to send two paratroop divisions into a sector where 9 out of 10 would probably be slaughtered. He eventually decided the troops were essential to the mission and said, "I felt that only once in a lifetime could a problem of that sort weigh as heavily on a man's mind and heart". Then he became President and found a comparable burden :

"when one man must conscientiously, deliberately, prayerfully scrutinize every argument, every proposal, every prediction, every alternative, every probable outcome of his action, and then-all alone-make his decision. "

Graham-Style Formula
Benjamin Graham was known for his thorough financial analysis of companies, but he also experimented with many simple rules of thumb. Here is a valuation formula adapted from The Intelligent Investor:
P/E = 8.5 + 2G where P/E is the fair P/E ratio, and G is the earnings growth rate.
The idea is that you get a formula that's simple enough to use in the privacy of your own skull, without needing a computer or calculator.
There is a drawback with this formula: as written, it gives answers that are on the high side. But the good news is that with some modifications, this style formula can give you a very fair estimate of the real answer. It's almost as simple as the PEG ratio, and much more accurate.
This calculator lets you check the accuracy of the formula. (It's initialized with a more conservative version of the formula than what's given above.)

Keep it Simple and Sane (Barb Rogers) I skipped a lot of this, and just skimmed through since I felt I already do all these, but the author writes well hence had picked it up. While skimming, saw these two that capture the essence of the book and I agree wholeheartedly with both.

• If others can't see past your outsides, its because they are living with their own heaviness and limitations, and the best thing you can do is to leave them to their business and hope someday they will find some understanding.
• What does "free to be" mean? For me, it means living in the moment, exactly as Iam, doing the best that I can do, and always striving forward. It means accepting that Iam not perfect, I will never be perfect, but I don't have to be. Its about leaving other people, and a God of my understanding to their business and taking care of mine. It is not my job to change the world or anyone in it, but to live in the truth of who Iam, what I can, where and when I can, and leave the rest to a power greater than I.

SOWING AND REAPING/LAW OF RECIPROCITY

• "The universe is completely balanced and in perfect order. You will always be compensated for everything that you do." -- Brian Tracy
• "Work joyfully and peacefully, knowing that right thoughts and right efforts will inevitably bring about right results." -- James Allen
• "We are spinning our own fates, good or evil, and never to be undone. Every smallest stroke of virtue or of vice leaves its never so little scar." -- William James

• "How little praise warms out of a man the good that is in him, as the sneer of contempt which he feels is unjust, chills the ardor to excel." Edward G Bulwer-Lytton
• "There is no such thing as luck. It's a fancy name for being always at our duty, and so sure to be ready when good time comes." Edward G Bulwer-Lytton
• "Happiness and virtue rest upon each other; the best are not only the happiest, but the happiest are usually the best." Edward G Bulwer-Lytton
• "Dignity does not consist in possessing honors, but in deserving them." Aristotle
• "The energy of the mind is the essence of life." Aristotle
• "We are what we repeatedly do. Excellence, then, is not an act, but a habit." Aristotle
• "I confess I have the same fears for our South American brethren; the qualifications for self-government in society are not innate. They are the result of habit and long training, and for these they will require time and probably much suffering." Thomas Jefferson

Just got bumped up to 4.0 today. Thrilled to bits.

How we Decide

From "How we Decide" - Jonah Lehrer

• 
  
• Loss Aversion : In human decision making, losses loom larger than gains. The pain of a loss was approximately twice as potent as the pleasure generated by a gain.


• Loss aversion is part of a larger psychological phenomenon known as negativity bias, which means that for the human mind, bad is stronger than good. This is why in marital interactions, it generally takes at least five kind comments to compensate for one critical comment. The only way to avoid loss aversion is to know about it.


• How do we regulate our emotions? The answer is surprisingly simple: by thinking about them. An individual can try to figure out why he's feeling the what he's feeling.
• 
  
• Could eat one marshmallow right away or if the child was willing to wait a few minutes, could eat two. Practically all decided to wait. The marshmallow was a test of self-control. The emotional brain is always tempted by rewarding stimuli. The ability to wait was because patient children were better at using reason to control their impulses. They covered their eyes, managed to shift attention somewhere else, looked for something else to play with and not fixate on the sweet treat. This skill also allowed these kids to spend more time on their homework.
• 
  
• People with frontal-lobe ;lesions can never solve puzzles. When problem-solving, the first brain areas activated were those involved in executive control, such as the prefrontal cortex and anterior cingulate cortex. The brain was banishing irrelevant thoughts so that the task-dependent cells could properly focus. Insight required a clean slate. Most of the possibilities your brain comes up with aren't going to be useful, but then when the right answer suddenly appeared, there was an immediate realization that the puzzle had been solved. This act of recognition is performed by the prefrontal cortex.


• If the mind were infinitely powerful, information would be an unqualified good. The biological reality of the brain however is that it is severely bounded. the conscious brain can only handle about seven pieces of data at any one moment.


• Too much data can intimidate the prefrontal cortex, that's when bad decisions are made.


• Experiment with some people given a 7-digit number and others given a 3-digit number, they were offered a choice between a chocolate cake slice or a fruit bowl. The 7-digit people normally chose the cake.


• Distracting the brain with a challenging memory task made a person much more likely to give in to temptation and choose cake. the subjects' self-control was overwhelmed by the extra 5 digits.


• The effort required to memorize seven digits drew cognitive resources away from that part of the brain that normally controls emotional urges.


• A mind trying to remember lots of information is less able to exert control over its impulses.


• A slight drop is blood sugar levels can also inhibit self-control, since the frontal lobes require lots of energy in order to function.


• Students were made to watch a mentally taxing movie while ignoring the rolling text at the bottom of the screen and then some were then offered lemonade with sugar, others were given lemonade with Splenda. After giving time for the glucose to enter the brain (abt 15 mins), the students were asked to pick apartments. The students without the sugar relied on intuition and instinct rather than reason since their rational brains were just too exhausted to think.


• This research can also help explain why we are cranky when we're hungry and tired: The brain is less able to suppress the negative emotions sparked by small annoyances.


• A bad mood is really just a rundown prefrontal cortex.


• The brain relies on mental accounting since it has such limited processing abilities. These thinking problems come from the fact that we have slow, erratic CPU and the fact that we're busy. Since the prefrontal cortex can only handle seven things at the same time, its constantly trying to chunk stuff together to make the complexity of life more manageable. Instead of thinking about each M&M, we think in scoops.


• The fragility of the prefrontal cortex means that we all have to be extremely vigilant about not paying attention to unnecessary information.


• We live in a culture that's awash in information. The human brain was not designed to deal with such a surfeit of data. Being exposed to extra news was distracting.
• .
• On complicated decisions, its probably a mistake to reflect on all the options, as this inundates the prefrontal cortex with too much data.
• Use your conscious mind to acquire all the information you need for making a decision. But don't try to analyze the information with your conscious mind. Instead, go on holiday while your unconscious mind digests it. Whatever your intuition then tells you is almost certainly going to be the best choice.
• Anyone who is making difficult decisions can benefit from a more emotional thought process.As long as someone has sufficient experience in that domain-he's taken the time to train his dopamine neurons- then he shouldn't spend too much time consciously contemplating the alternatives.
• It is the easy problems that are best suited to the conscious brain. These simple decisions won't overwhelm the prefrontal cortex.
• Complex problems, on the other hand, require the processing of the emotional brain, the supercomputer of the mind. This doesn't mean you can just blink and know what to do- even the unconscious takes a little time to process the information-but it does suggest that there's a better way to make difficult decisions.

Strawberry jam: 

Consumers first picked their favorite Jam based on taste. Matched Consumer Reports reviews. 

Then I asked to explain why they prefer a particular Jam, which forced them to analyze their first impressions. All this extra analysis warped their jam judgment. 

Thinking Too much about the strawberry jam causes us to focus on all sorts of variables that actually don't matter. Instead of just listening to instinctive preferences - Best jam is associated with the most positive feelings- our rational brain search for reasons to prefer one jam over another. 

Repeated that. And with posters. 

5 posters- if subjects were divided into two groups. First was the non thinking group - instructed to Simply rate each poster on a scale from 1 to 10. The second group were given question that ask them why they liked or disliked each of the five posters. 

The members of the non-thinking group were much more satisfied with their choice of posters. SelfAnalysis resulted in less self-awareness. 

Fragility of the prefrontal cortex means that we all have to be extremely Vigilant about not paying attention to unnecessary information. When the prefrontal cortex is overwhelmed a person can no longer make sense of the situation. correlation is confused with causation. 

People in good mood are significantly better at solving hard problems that require insight then people who are cranky and depressed. The prefrontal cortex isn't preoccupied with managing emotional life, which means they're free to solve the problem at hand. 

Reason and feeling are both essential tools., each is best suited for specific tasks. Simple problems require reason on the other hand for important decisions about complex items use your emotions. It might sound ridiculous, make scientific sense: think Less about those items that you care a lot about. Don't be afraid to let your emotions choose. 

How can anyone identify the simple problems that are best suited for reason? Can the decision be accurately summarized in numerical terms? 

2 Simple tricks to help ensure that you never let certainty interfere with your judgment: First always entertain competing hypotheses. When you force yourself to interpret the facts through a different but uncomfortable lens you often discover your beliefs rest on a rather shaky Foundation. Be your own devil advocate. 

Second, continually remind yourself of what you don't know. Unknown unknowns. 

Classic again. JH

This thing has gone round and round even in the SMS, before SEOS.
All the ideas have come again and again.
I think the only way it's going to get fixed is to stay out of the way and let a few people that are majorly impacted to go ahead and just do it. Then the rest of us will follow.
Otherwise it will just never happen.
BGP will go with the flow, absorb any changes that may happen.

iWise bookmarks from iphone

• "A mind always employed is always happy. This is the true secret, the grand recipe, for felicity." Thomas Jefferson
• "When angry, count ten before you speak; if very angry, a hundred." Thomas Jefferson
• "Our greatest happiness does not depend on the condition of life in which chance has placed us, but is always the result of a good conscience, good health, occupation, and freedom in all just pursuits." Thomas Jefferson
• "I confess I have the same fears for our South American brethren; the qualifications for self-government in society are not innate. They are the result of habit and long training, and for these they will require time and probably much suffering." Thomas Jefferson
• ""Determine never to be idle. No person will have occasion to complain of the want of time who never loses any. It is wonderful how much may be done if we are always doing." Thomas Jefferson
• "Happiness is not being pained in body or troubled in mind." Thomas Jefferson
• "Never put off till tomorrow what you can do today." Thomas Jefferson
• "Honesty is the first chapter in the book of wisdom." Thomas Jefferson
• "I'm a great believer in luck, and I find the harder I work, the more I have of it." Thomas Jefferson
• "There is a natural aristocracy among men. The grounds of this are virtue and talents." Thomas Jefferson
• "Let us have faith that right makes might, and in that faith let us dare to do our duty as we understand it." Abraham Lincoln
• "Faithfulness and sincerity are the highest things." Confucius
• "The man of virtue makes the difficulty to be overcome his first business, and success only a subsequent consideration." Confucius
• "To be wronged is nothing unless you continue to remember it." Confucius
• "Follow your instincts. That's where true wisdom manifests itself." Oprah Winfrey
• "That guy just cut right in front of me. But I'm not going to let it bother me. No. I'm on my way to work and I decided it doesn't matter who wants to cut in front of my lane today. I'm not going to let it bother me one bit. Once I get to work, find myself a parking space, if somebody wants to jump ahead of me and take it, I'm going to let them." Oprah Winfrey
• "Well done is better than well said." Benjamin Franklin
• "Our critics are our friends; they show us our faults." Benjamin Franklin
• "Rather go to bed with out dinner than to rise in debt." Benjamin Franklin
• "A penny saved is a penny earned." Benjamin Franklin
• "Necessity never made a good bargain." Benjamin Franklin
• "Take time for all things; great haste makes great waste." Benjamin Franklin
• "Whatever is begun in anger, ends in shame." Benjamin Franklin
• "Sloth makes all things difficult, but industry, all things easy. He that rises late must trot all day, and shall scarce overtake his business at night, while laziness travels so slowly that poverty soon overtakes him." Benjamin Franklin
• "Would you persuade, speak of interest, not of reason." Benjamin Franklin
• "Would you live with ease, do what you ought, and not what you please." Benjamin Franklin
• "I find my greatest pleasure, and so my reward, in the work that precedes what the world calls success." Thomas A Edison
• "Insults are the arguments employed by those who are in the wrong." Jean Jacques Rousseau
• "The true measure of a man is how he treats someone who can do him absolutely no good." Samuel Johnson
• "The only tyrant I accept in this world is the still voice within." Mahatma Gandhi
• "It is the quality of our work which will please God and not the quantity." Mahatma Gandhi
• ""Quarrel not at all. No man resolved to make the most of himself can spare time for personal contention. Still less can he afford to take all the consequences, including the vitiating of his temper and loss of self control. Yield larger things to which you can show no more than equal right; and yield lesser ones, though clearly your own. Better give your path to a dog than be bitten by him in contesting for the right. Even killing the dog would not cure the bite." Abraham Lincoln
• "We should be too big to take offense and too noble to give it." Abraham Lincoln
• "Let reverence for the laws be breathed by every American mother to the lisping babe that prattles on her lap. Let it be taught in schools, in seminaries, and in colleges. Let it be written in primers, spelling books, and in almanacs. Let it be preached from the pulpit, proclaimed in legislative halls, and enforced in the courts of justice. And, in short, let it become the political religion of the nation." Abraham Lincoln
• "Lets have faith that right makes might and in that faith let us, to the end, dare to do our duty as we understand it." Abraham Lincoln
• "Discourage litigation. Persuade your neighbors to compromise whenever you can. As a peacemaker the lawyer has superior opportunity of being a good man. There will still be business enough." Abraham Lincoln