Category Archives: Who Said It

Warren Buffet’s “Fundamentals of Investing”

Investment tycoon Warren Buffet recently shared an exclusive clip from his letter to Berkshire Hathaway shareholders, in which he lists the “fundamentals of investing”.

Fortune Magazine shared Buffet’s points with the following bullets:

  • You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”

  • Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake.

  • If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it.

  • With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field- not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.

  • Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important.

Buffet continued: “My two purchases were made in 1986 and 1993. What the economy, interest rates, or the stock market might do in the years immediately following- 1987 and 1994- was of no importance to me in making those investments. I can’t remember what the headlines of pundits were saying at the time. Whatever the chatter, corn would keep growing in Nebraska and students would flock to NYU.”

 

Outlook for the US Stock Market in 2014

US stocks had an extremely positive year last year, but 2014 has already begun to shows signs of unpredictability. Reactions are mixed, with some claiming a correction is imminent while others believe the market can still improve. A more recent concern is of contagion from emerging markets.

CIO at JP Morgan Private Bank Richard Madigan explained that the current market differs greatly from that in the late 1990s.

“We came in to this year expecting markets to be more volatile based on the fact that they, like the global recovery, are transitioning to a more normal environment,” he said. “We’re already seeing indications of this as volatility has already picked up across asset classes. Consensus opinion is currently pointing to emerging markets as the cause.”

According to Madigan, JP Morgan has “significantly reduced investments in foreign currencies, commodities, EM debt and EM equity markets” throughout 2013. In some cases, they “cut 10% to 15% of portfolio exposure,” he added.

Madigan’s outlook for the year is “built around the continuation of a slow-but-steady global recovery.”

The New Approach to Non-Profits

Bankers, investors and entrepreneurs are taking a new approach to philanthropy with finance-focused projects aimed at supporting global causes.

“We get good yield,” explains Andrew Harris, an adviser of private equity firms at Forum Capital Partners and vice chairman of the non-profit Resolution Project. “We think it’s very different and, to use a Wall Street term, very differentiated.”

Harris is one of many young bankers who are working to aid those in need without deserting their careers or neglecting their aptitude for finance.

Andrew Klaber, an analyst at Paulson & Co. and founder of the non-profit Even Ground, states: “Among this generation- our generation- is a deep passion and interest in learning, earning and returning simultaneously. You just see an unmet need in your research, and research is what we do on Wall Street.”

Klaber’s Even Ground provides education and care to African children who are affected by AIDS. The organization has distributed more than $800,000 for the cause since its inception. Even Ground co-founder Julissa Arce, who works for Merrill Lynch clients at Bank of America, added:

“The first time I felt like I made it wasn’t when I made director. I felt like I made it when I launched this fund.”

Tim Kleiman, an analyst at Golub Capital, is also working on a project to fund higher education in Africa. He explains that the 2008 financial crisis also had an impact on his efforts.

“There’s been a cultural humility that’s come out of the financial crisis,” he says. “When you’re confronted with these really humbling events, where you see the meltdown of these systems and the sad human costs of that- that were not necessarily the result of anyone’s intention- for me it galvanized my thinking.”

“That world that I’m imagining, where I’m a partner and I’ve made all my money, who knows what that world’s going to look like? So why not try something now?” he added.

Extreme Weather Conditions May Impact Spring Business

Cities across the United States have been struggling with frigid temperatures, snow and ice, and the unusually harsh weather has had an impact on numerous industries and markets across the continent. According to Morningstar‘s Jamie Katz, the weather may also have a negative effect on retail this spring if retailers are forced to offer discounts earlier than planned.

Reuters reports:

 

 

Amber Capital Launches Fund Focused on Southern Europe

Hedge fund manager Amber Capital recently revealed its plans for a new fund focused on southern Europe. The $1.5 billion firm has raised $350 for the new project, primarily from U.S. institutional investors, and launched the Amber Southern European Equities Fund on December 1st.

Amber Capital’s portfolio manager Jose de la Rosa said: “We are convinced that we are seeing the stabilization of the macro in southern Europe. We are not expecting strong growth but we firmly believe that the structural reforms since the start of the financial crisis are starting to pay off.”

According to de la Rosa, the fund will especially focus on Spain as a result of its new banking system. In general, countries in southern Europe are undergoing a “slow re-industrialization,” he said.

“In 2014, Spanish auto production will increase 50% year on year. This is not because Spaniards are buying more cars but because Spain is increasing manufacturing for reports,” said de la Rosa. In fact, four auto manufacturers closed plants in France, Belgium and Poland in 2012. The manufacturers also opened new branches in Spain over the past two years.

De La Rosa added, “Europe is cheap relative to Japan, and the U.S. and emerging markets. What is truly cheap is the periphery and within the periphery one needs to take a deeper dive.”

Brooke Harlow on the JOBS Act in 2014

Last year, the hedge fund industry anticipated significant change as a result of the Securities and Exchange Commission’s JOBS Act, which was intended to open communication and increase transparency between hedge funds and potential investors. Brooke Harlow, executive vice president and managing director at Managed Funds Association, recently discussed the development and its apparent lack of impact on the market thus far.

She explains: “For years, the general solicitation ban left fund managers at a clear disadvantage, unable to discuss- or defend- their funds in public for fear of regulators interpreting their words as an advertisement for new investors.”

“Removal of the advertising ban led many observers to speculate about when we might see the first wave of advertisement from hedge funds on interstate billboards or as Super Bowl commercials,” she continues. “Anyone holding their breath for a flurry of hedge fund ads running alongside holiday commercials as we close out the year might be disappointed, but commentators attributing managers’ lack of engagement in public communication to widespread disinterest or fear of tarnishing their image with investors are ill-informed.”

Harlow goes on to explain that while many funds have reaped the benefits of the new SEC rules, some are still shackled by other limitations. “Many SEC-registered managers also claim a registration exemption from the Commodity Futures Trading Commission, and to qualify for the exemption managers are forbidden from marketing interests in commodity pools to the public in the U.S.” There are various other obstacles in place as well, according to Harlow, but efforts are already being made to remedy the situation. 2014 has the potential to be a promising, revolutionary year for the hedge fund industry.

“For too long, the hedge fund industry was at a competitive disadvantage in the communications landscape,” Harlow says. “Recent regulatory changes will help the industry evolve to provide a greater level of transparency and information sharing with investors and the public. While more regulatory work is needed, the rules written in 2013 could help ensure that next year is one in which hedge funds are able to seize new opportunities to grow and educate the public- to the benefit of everyone involved.”

 

Jim Baer on Data-Driven Businesses

Jim Baer, a senior director of Data Science with LinkedIn, recently discussed what he considers the four keys to data-driven business. He explained that data today can and should have a tremendous impact on a company’s success.  Though every business varies, and getting involved in the data world appears a daunting task, companies can benefit greatly by assessing their individual goals and resources. According to Baer, there are four basic pillars upon which businesses should base their approach:

1. Build the Right Data Infrastructure for the Company’s Goals. Baer explains that a solid data infrastructure is the fundamental source of data which will help a company make decisions. However, creating a data infrastructure involves numerous different factors. “There will always be trade-offs between the cost of collecting an wielding data and the benefit for business goals,” he says. “For example, a gaming company may want to collect all of the data on how users play its games in order to create effective features and grow the business. This will require investing in a huge relational database that allows those building the games to ask a broad variety of questions.” Other businesses have different needs, depending on their market and client-base.

Baer suggests approaching the data infrastructure investment with specific goals in mind, as well as a certain degree of flexibility which will allow the infrastructure to grow and shift as the business evolves.

2. Democratize Data Throughout the Company. “Data infrastructure investments won’t provide value unless the data collected is accessible,” Baer says. “The more people who can access and use data to measure performance, evaluate improvements, and learn about the business and customers’ patterns, the better.”

3.   Enable Experimentation. Tools that allow experimentation are crucial, according to Baer. These allow a company to test innovations and treatments, as well as learn from performance data, before any high-stake decisions are made.

“The best experimentation systems will streamline the creation and tracking of test groups, treatments, and results to help simplify the process and scale it across an organization,” Baer explains.

4. Foster a Data-Driven Culture. Such a culture incorporates data in already-familiar processes, and encourages all employees to become more involved in experimentation and innovation. This culture can be supported by constantly consulting the data when decisions are being made. New programs and features should also be backed by data.

 

 

Bridgewater Associates Founder Discusses the Economic Machine

Ray Dalio, the founder of $150 billion hedge fund Bridgewater Associates, recently decided to reach out to the public without allowing the media to, well, mediate.

Dalio explained: “The economy works like a simple machine. But many people don’t understand it— or they don’t agree on how it works — and this has led to a lot of needless economic suffering. I feel a deep sense of responsibility to share my simple but practical economic template. Though it’s unconventional, it has helped me to anticipate and sidestep the global financial crisis, and has worked well for me for over 30 years.”

Zach Kouwe, a PR executive in New York, said: “This is great PR for Bridgewater – it will help the firm recruit the best and the brightest thinkers from around the world and will likely attract investors as people from Asia to Africa learn about Mr. Dalio’s successful strategies and theories on the economy.

Here is the full 30 minute explanation from Ray Dalio:

 

Women in Business: Mujeres de Exito

Women across the globe struggle to obtain low-interest loans in hopes of securing their families’ futures. One such woman is Marisol Santiago from Villalba, Puerto Rico. When she lost her job in the healthcare industry following the global recession, she was forced to take on three part-time jobs to support her children. Thanks to a small loan, Marisol was eventually able to launch her own pharmacy.

This is not so rare in Puerto Rico, thanks to Doral Bank. The bank, which has branches throughout the U.S. as well, teamed up with communities and non-profits to launch a program aimed at promoting women’s entrepreneurship. According to Doral, “these initiatives are focused on providing the requisite financial support and peer monitoring, so that women are propelled as drivers of economic growth.”

Marisol’s loan was a result of this effort. In fact, more than 25 women have received financial aid and mentoring for their businesses through Mujeres De Exito, or Successful Women, over the last two years. The program has already helped create more than 30 women-owned businesses and 100 jobs.

Still, Doral Bank and other programs like Mujeres De Exito have a lot of work to do. According to the Kauffman Foundation, less than 5% of venture financing goes to women-owned businesses in the United States today. In Puerto Rico, the number of women with bachelor’s degrees is significantly higher than men, and yet only about 1 of 100 women own their own businesses.

Doral Bank’s Lucienne Gigante explains: “There are millions of bold and ambitious women like Marisol in communities across Puerto Rico and the United States who deserve a more supportive hand. Financial institutions can play a vital role in this effort. If fostering entrepreneurship and advancing women are made distinct priorities at the local level, women will be empowered to take action, rebuilding communities one household at a time.”

Interview with Rob DeMartini, CEO of New Balance

Rob DeMartini, CEO of New Balance, recently discussed the company’s American factories, its plans to expand beyond running shoes, and the recent $500 million Brighton Landing project in an interview with the Boston Globe’s Taryn Luna.

Luna asked: “You’re pushing the federal government to apply the Berry Amendment, which requires the military to provide soldiers with US made gear whenever possible. How would this affect New Balance’s US manufacturing?

DeMartini: “We’re not making a push to do anything but get the military to enforce a law that has been on the books since the ’40s. US-made athletic shoes are available. It’s the only place on the uniform, head-to-toe, where the Berry Amendmentis not enforced. The commitment we’ve laid out is if Berry will be enforced, we’ll hire up to 250 more workers into our five factories.”

New Balance has been very vocal against changes to the Trans-Pacific Partnership that could remove a tariff on shoes exported to the US. If this happens, would your domestic factories remain open?”

“We’ve been making shoes in the US since 1938. No single piece of legislation is going to stop us, but it’s going to make it harder and harder.”

“New Balance is churning out more casual shoes than ever before. Why?

“Our casual shoes are coming out of our Made in the USA program. You can command a premium for it and consumers flock to it. I was in Mexico recently and some of our casual shoes are commanding $150 to $200 US dollars because American still means quality.

The New Balance brand is still a performance brand at its heart, but lifestyle is very popular. It probably makes up 35 percent of our total sales. It’s sports shoes worn on Friday and Saturday nights. The casual work environment has helped us. People don’t dress as formally anymore.”

“Brighton Landing just broke ground. Why invest $500 million in the project when many of the facilities won’t be used by New Balance and the current headquarters are more than adequate?”

“It’s a complex and complicated project that is bigger than New Balance the company. From a business standpoint, we’re preparing to be a $5 billion company. Our headquarters will be significantly bigger. The rest of the buildings, whether it be the medical-oriented office parks, the retail, the T stop, or the sports complex, that’s about giving back to Brighton.”