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  • China First: Analyzing Apple's Most China-Focused Presentation To Date [View article]
    One of the things I like about China is (apart from automobile statistics) it is generally physically safe. Just look at the murder statistics. They are 4.7x lower in China than the U.S. (source: Wikipedia). Robberies are 6x lower and violent crime 18x lower. [1]

    In the U.S. I feel that people who aren't "equal looking" are more likely to become victims, either of crime, or of social ostracism due to envy and entitlement. So the equality I think has been enforced under threat since the early days of colonialism. We have a lot of class jealousy. Despite having 40% of the world's wealth, and despite much of that wealth being made by entrepreneurs. With the exception of our homeless, most even of our poor have a high absolute standard of living. Certainly higher than China.

    Yet, one hardly ever hears people talk about how fortunate they are to live in such a great country, and how they freely chose to spend all their high developed country income so they momentarily are short on cash, but they have a wealth of material possessions. Also they have clean air and water, climate-controlled homes, on-demand entertainment, freedom of speech and religion, vast quantities of both decadent and healthy foods, and so forth. But instead, one hears all this class envy. It is a foreign concept to me. I remember making minimal wage as a student. I was often broke, had a bad diet. But I didn't feel class envy.

    I suppose this is good for the Chinese iPhone thesis, since Chinese citizens may have fewer reasons to hide class status.

    Also, please don't take this the wrong way, but generally I'm not a fan of articles about mega-cap companies for the reason that the mispricings are few. This article at least brings a fresh perspective!

    Mar 22, 2015. 12:54 PM | Likes Like |Link to Comment
  • Congratulations Covidien: You Escaped In Time [View article]
    Clearly this is a case of insufficient anti-dog-eat-dog rules.
    Mar 19, 2015. 10:23 PM | Likes Like |Link to Comment
  • Watch Complications Get It Backwards [View instapost]
    Last summer I bought a bike in China for $30 which I then sold at the end of summer for the same price. Some parts popped off of it at first but then I reattached them more securely. It was fun because my wife could sit on the back of the bike.

    Ockham's rule is awesome. I try to always design scientific/engineering solutions that adhere closely to that rule. More complex descriptions are frequently unnecessary to either provide someone with utility (on the industry side) or as a scientific description (on the academic side). Unfortunately, paper reviewers usually think complexity is a sign of intelligence, so sometimes I will design unnecessary bells and whistles to glue on for those who are into that kind of thing. On the industry side many people like to maintain codes (read: job security) by mucking around with them constantly, thus also violating Ockham's razor.

    For investing I prefer ideas that are simple for me and complex for others. A differential Ockham's razor.
    Mar 15, 2015. 03:31 PM | 1 Like Like |Link to Comment
  • What Is A Vote Worth? [View instapost]
    When I was a teenager, I would say the same thing about voting: the odds are that it won't matter, so don't bother. Often people would counter-argue: if everyone thought like you, then no one would vote. Then I would explain: No, actually, if everyone thought like me, then:

    1. People who have no valid information to introduce into the system would refrain from voting with certainty (hence a lot of ignorant public policies would be mitigated), and
    2. The remaining people would choose to vote or not by a dynamic equilibrium process, e.g. flip a coin based which has probability of heads equal to the chances of swinging elections you care about.

    I got sick of explaining this reasoning though so now I avoid the topic.
    Mar 15, 2015. 03:15 PM | Likes Like |Link to Comment
  • Pairs Forum [View instapost]
    Nice article by Thorpe! I am a big fan of Kelly betting. I remember during my wedding celebration, I kept explaining cool derivations of Kelly betting fractions to my family members. And yeah, if you can lop off any negative returns in your return distribution, or reduce correlations sufficiently, Kelly betting will happily tell you to go all in on everything.
    Mar 4, 2015. 07:22 PM | 2 Likes Like |Link to Comment
  • Berkshire Hathaway Annual Letter [View instapost]
    Since January 2000, returns are as follows (with dividends reinvested):

    - Berkshire (BRK.B), +9.8% annualized
    - Vanguard Small Cap Value Index Fund (VISVX), +10.7% annualized
    - Vanguard Mid Cap Value Index Fund (VMVIX), +9.2% annualized
    - Vanguard Large Cap Value Index Fund (VIVAX), +5.7% annualized

    I compare with the small cap value index fund since it is one of my favorites which presents with some statistical mispricings due to the small and value companies (see e.g. Eugene Fama's three factor model). Most investors can easily put money in that fund so it is an obvious "opportunity foregone" worth comparing against. Despite all the succession risks, Buffett is only clearly beating the large cap value index fund. It is not that impressive. I like 1950s Buffett much better.

    My interpretation of this is that Buffett should have retired 10-15 years ago. Also, it would be better for shareholders to break up and spin-off different parts of Berkshire than to have some designated guru continue the increasingly hard task of scaling when scale is at a disadvantage. Perhaps he's built up some cult of worshippers, so people are afraid to say these things to him. Million dollar lunches and advising the President are cool job perks though. So I can understand why he would do what he does.
    Mar 4, 2015. 05:03 PM | 2 Likes Like |Link to Comment
  • The Biffy Butler Bidet Sprayer/Digital Accessory Caddy Of Investments  [View instapost]
    I once made a plot comparing one of the long products (in my case, SVXY) with one of the short products (in my case, TVIX), using a daily rebalanced position and a large cash buffer:

    I was puzzled why the constant leverage decay did not show up in the plot. Of course if you plot TVIX vs SVXY side-by-side, you can clearly see the decay, where when SVXY returns 0% over long time periods, TVIX tend to decay by a lot. Then I realized, of course, I am rebalancing daily in my plot!

    Moral of the story: if you take a 1% position, and the ETF moves against you, and you keep rebalancing it to size as 1%, you don't actually capture the constant leverage decay. You just end up replicating the ETF's daily rebalancing in your account.

    One solution would be to allow the position to grow up to some maximum, e.g. 3%. But then one could be a forced buyer of a broken product at an unreasonable price. Another solution could be to hedge in advance using the options chain to limit exposure.

    I haven't shorted any of these though so I can't comment on which is better. I probably never will short a stock (or ETF) unless I've hedged using options against the case where the underlying goes up 100x. This has happened a number of times in history due to short squeezes and bubbles. Safety first!
    Mar 4, 2015. 04:32 PM | 3 Likes Like |Link to Comment
  • Will The Federal Gasoline Tax Increase In 2015? [View instapost]
    For all the voting people do, the total tax burden does not change very much.

    I think it is all about incentives. The problem is people like me who work for the government have the incentive to consume as much resources as possible. Well, I am partial to science and parks so I do not mind funding those. But I would not say government is generally very efficient.

    I bet all you would need to do is give performance bonuses to high-up governmental employees based on how many people they fire, or how much expenditures they reduce. A fraction of profits (for voters) would probably work fine, as long as the net incentive to reduce waste is larger than the net incentive to increase waste.

    If the incentives are aligned with voters' then judging by how human nature generally responds to incentives, a lot of wasteful expenditures would be cut out in short order.

    Conversely, suppose you get the incentives backwards. Human nature predicts that no matter how much you vote or try to ferret out corruption, many of the resources will still end up being used for boondoggle expansion. Look at the Communist Party of China for example. Corruption there gives high reward and little downside, so party members will just keep playing the game.
    Feb 21, 2015. 03:37 PM | 1 Like Like |Link to Comment
  • Xinyuan Real Estate: Board Resignations And A 2015 Outlook [View article]
    Mismanagement. Xinyuan's management seems to destroy a lot of value, so the market is trying to price exactly how much value they will destroy in expectation. As well as other risks such as debt or worries about fraud.
    Feb 20, 2015. 01:53 PM | 1 Like Like |Link to Comment
  • King Digital's Big 4th Quarter Mistake [View article]
    I agree that buybacks in the mid or low teens would be more accretive to value. The special dividends will not attract long-term oriented dividend investors.

    Nevertheless, paying special dividends is still I think roughly neutral for value.

    It is certainly a less value-destroying move than many companies make. The typical behavior among corporate executives is to squander cash, diworsify by doing foolish mergers in a price-insensitive way, or issue excessive executive options. So I like to see that they are at least avoiding obviously bad moves.
    Feb 18, 2015. 06:06 PM | 1 Like Like |Link to Comment
  • Why It's Finally Time To Buy The King Digital Bull Story [View article]
    Agree about the dividend. Especially with them being 'special dividends' instead of regular dividends -- they will not attract dividend investors. I would prefer to see large repurchases of shares so long as prices are low or mid teens.
    Feb 18, 2015. 05:58 PM | Likes Like |Link to Comment
  • Congratulations Covidien: You Escaped In Time [View article]
    @Ba1k3es: I suggest you read the following overview of corporate inversions by Joshua Kennon:

    In summary, the U.S. has one of the highest statutory tax rates of corporations (specifically, C corporations) in the world. And that's before counting double taxation of dividends. This is a major impediment for many companies to do business, and so it is completely rational that such companies would pursue tax inversions. Now of course some corporations enjoy low tax rates in practice, especially if they are bribing the right politicians, and have armadas of lawyers who know how to bribe and sue the right people.

    Also, placing corporate cash in tax neutral jurisdictions is certainly helping shareholders, if those shareholders are in any taxable jurisdictions other than the U.S. The reason is that those shareholders can avoid paying additional (and totally unnecessary) layers of tax in both the U.S. and their home country. Certainly taxation can be a disincentive to foreign investment.

    But suppose we leave the real world and enter politics. It is still not at all clear that liberal or conservative economists would want to encourage our current corporate tax policies (in fact, they overwhelmingly don't). This is because of the big incentives for political corruption, and distortions of C corporation taxation relative to say passthrough LLC taxation, which needlessly distort the real economy. Nevertheless, we have a large uneducated electorate mob that is demanding that "corporations pay their fair share." Well, not my problem, but still, it is not clear that the public policy here is remotely reasonable.*

    * GE's tax lawyers may disagree.
    Feb 12, 2015. 07:01 PM | Likes Like |Link to Comment
  • Don't Discount Bill Ackman [View instapost]
    I saw him on TV once. I didn't realize he thought highly of himself. I just saw a man wearing too much makeup and eyeliner.
    Feb 11, 2015. 03:57 PM | Likes Like |Link to Comment
  • Will The Supreme Court Find A Federal Right To Same-Sex Marriage? [View instapost]
    Eventually -- it's just a matter of time.
    Feb 11, 2015. 03:53 PM | 1 Like Like |Link to Comment
  • Bill to ban online gambling floating around Congress again [View news story]
    These rich old monopolists know that a free market competition in online gambling will drive margins down to 0%. That's why they're lobbying to forbid competition. For example, in the Bitcoin area there already are provable 0% house edge betting markets. That's a better commission structure than exists in the stock market.

    Opposing "online gambling" is nonsensical if you use the stock market. Because you are already massively benefitting from an efficiently clearing market for risks and rewards. By the same nonsensical argument, people should have to physically drive down to a government exchange to buy gold-stamped physical shares of companies, with a 50% bid-ask spread, and then fill out 500 pages of Federal paperwork, and have a huge amount of disposable income, to be "eligible" to invest.

    Of course that's not what the lobbying is about. It's about making extortionately high margins from the middle class and poor (or the currently rich but soon to be poor!) through the private casinos and government lottos.

    But more simply, it is totally irrational to try to forbid contracts that exchange risk and reward for money in a "free market system." Such exchanges are the whole point of the free market system. Even if the government forbids one set of such contracts, then you can still make use of the entirety of the rest of the free market economy to construct all the betting contracts that your heart desires. No one can stop you from turning your home equity into massive numbers of bets on futures, derivatives, and Cabbage Patch dolls on EBay.
    Feb 7, 2015. 11:27 PM | Likes Like |Link to Comment