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  • A $1 Million Bet For Warren Buffett [View article]
    @KingOfPower: Wait. So I've been reading all these articles by Chris, and thought they were about guns, blonde singers, explosions, beer, and how the Man in Black defeated Vizzini.

    But you're telling me he has a secret agenda to make money? No way, I would never believe it, it's just too crass!
    Nov 27, 2015. 02:27 PM | 2 Likes Like |Link to Comment
  • We Still Think Cadiz Is Worthless: So Cal Metropolitan Water Department 'Not Pursuing' CDZI's Water Project [View article]
    Any thoughts on Cadiz's mortgage and debt refinancing news today?
    Nov 24, 2015. 10:09 AM | Likes Like |Link to Comment
  • Like Selling Candy To Babies [View instapost]
    In case the market gets saturated you can diversify into Pixie Stix (380 for $14 from Amazon):

    The going price for these back when I was in middle school was $0.25.
    Nov 23, 2015. 08:20 PM | 1 Like Like |Link to Comment
  • 9 Simple College Savings Tricks [View article]
    Thank you Chris for all your excellent articles!

    Note UPromise has a entire section devoted to Nevada 529 plans:

    I stumbled upon this and it just had "Chris DeMuth" written all over it.
    Nov 23, 2015. 04:13 PM | Likes Like |Link to Comment
  • 9 Simple College Savings Tricks [View article]
    UPromise can be used to get 5% to 10% back per customer purchase with some credit cards, in college loan or college education accounts.

    Their main website:

    Joshua Kennon's discussion:
    Nov 23, 2015. 03:27 PM | 1 Like Like |Link to Comment
  • Michael Kors - Undervaluation Is Not Implied By Expectations [View article]
    @James Melvin: I am glad someone else has read The Outsiders. It would be great to have managements that are great capital allocators conducting buybacks that are highly price- and value-sensitive and time-insensitive. No disagreement there.

    The problem arises from managements who are most definitely not Henry Singletons conducting buybacks just because they incorrectly believe buybacks are categorically "shareholder friendly." Of course, nothing could be more wrong, since the realized return for a buyback is strictly a function of the ratio of price and value. And the number of managements who are actually qualified to exploit mispricings is unfortunately fewer than the number of managements who are high on their own success, and wrongly believe they are the next Buffett or Singleton.
    Nov 20, 2015. 11:33 AM | 1 Like Like |Link to Comment
  • A +EV Lottery? [View instapost]
    On the Bitcoin front there was an interesting decentralized betting market recently being developed called Augur:

    As is usual with decentralized networks the underlying technology looks very complicated. But hopefully they will simplify the user interface to the point that ordinary mortals can use it.

    I had an idea since some years ago that one could avoid taking a position in stock as government-backed ownership of a company's assets. Instead, one could replicate a synthetic position in decentralized betting markets. Essentially, all one needs are betting markets that trade options on the company's future quoted exchange stock price. Then one could enter a synthetic long (buy call, short put) in the options chain. Assuming implied volatilities match actual volatilities, this would have the same payoff as being long the government-backed stock. Of course if the bet were placed in a cryptocurrency such as Bitcoin then there would be that additional risk, and there would be a risk that the parties determining contract outcomes need to be honest (Augur calls these parties 'referees').

    But I thought it was an interesting idea, since it might be a way to decouple ownership from nation states.

    Why would anyone want to take all these risks just to do that? Well, look at the U.S. dollar, it is constantly losing value. And then compare with the rate at which the Argentine Peso loses value, which is quite a bit more rapid. Thus, distributed betting markets could function as alternative stores of value when confidence in one's country's leaders is low.
    Nov 19, 2015. 12:45 PM | Likes Like |Link to Comment
  • Michael Kors - Undervaluation Is Not Implied By Expectations [View article]
    @Jan Svenda: A good example of a company that added significant long-term value via buybacks is AutoZone (AZO). I don't think it's easy but it can be done.

    Of course, on the flip side, a good example of a company that destroyed significant long-term value via buybacks is Weight Watchers (WTW).

    In both companies, one can observe the significant reduction of shares over the last 10 years (AZO: Aug 2006: 76 million, August 2015: 32 million; WTW: Dec 2005: 104 million, Dec 2015: 57 million). The effect on the per-share financial metrics such as EPS and book/share was quite dramatic. For example see the 10 year data on this website:
    Nov 19, 2015. 11:18 AM | Likes Like |Link to Comment
  • Santa Arb [View instapost]
    Of course there are some good post-IPO tech startups for good prices. For example, I considered buying Facebook when it was priced in the high teens, but concluded that it was not quite cheap enough. They are just a rarity in the current market for some reason.
    Nov 18, 2015. 05:10 PM | 1 Like Like |Link to Comment
  • Michael Kors - Undervaluation Is Not Implied By Expectations [View article]
    I strongly agree with the author and Doyle that it is foolish of managements to think of buybacks as "shareholder friendly." In a theoretical world of 100% logical management, they are destructive of value if purchased above intrinsic value, and accretive to value if purchased below intrinsic value.

    However, in reality, most managements are unable to carefully compute the intrinsic value of their business and remain resolutely contrarian in the style of the book The Outsiders. In fact, most managements are quite the opposite, and subject to overconfidence and groupthink biases. Therefore, due to psychological errors, a significant fraction of buybacks are destructive of value. Statistically, buybacks tend to accelerate at market peaks and halt during major economic crises. See the below article.

    Regarding KORS, I think it's worth around $50 based on earnings. Sure, it has downside if margins disappear and earnings fall through the floor. In that case, the author's arguments about book value provide a reasonable downside scenario. But so long as it is able to maintain high margins then it should be valued similarly to other luxury goods sellers, but with a modest multiple of earnings due to modest projected growth.
    Nov 18, 2015. 04:39 PM | 1 Like Like |Link to Comment
  • Michael Kors - Undervaluation Is Not Implied By Expectations [View article]
    What is to stop any company in general from selling off all future sales in a given geographic jurisdiction like Michael Kors did to Michael Kors Far East Holdings Limited? I am just a little surprised we don't see all the time on the news that company X had sold off 20% of itself in a related-party transaction to the CEO.
    Nov 18, 2015. 12:41 PM | 2 Likes Like |Link to Comment
  • Are Diamonds BS? [View article]
    Diamond Foundry startup is attempting to manufacture diamonds:
    Nov 16, 2015. 09:11 PM | Likes Like |Link to Comment
  • Are Diamonds BS? [View article]
    @foxgary: Better to get rich slowly than to get poor in a hurry! ;-)
    Nov 14, 2015. 06:36 PM | Likes Like |Link to Comment
  • Santa Arb [View instapost]
    @Conor: I agree that many of these tech startups are highly inflated in price. One contributing cause is VC capital is insanely easy to get. I have a bunch of ex-colleagues and friends who are creating startups. I think some business models are good but some I guess were also prompted by the ease of just waving your hands in the air and summoning at least several million dollars. Of course when there is so much funny money flying around, these startup folks do have decent chances to "get lucky" and cash out.

    Regarding informational advantages: it is great to be on the founding team side of the table, and good to be on the VC GP side of the table, but not so good to be a VC LP. I strongly agree it is quite bad to be the least informed person playing at this game: the public investor post-IPO. There is tons of private VC capital, so no one is even IPOing companies like Microsoft or Intel any more that are quite early in the growth phase. It makes no sense to leave that cash on the table. So the absolute best case longs could hope for is that some entrepreneur like Steve Jobs decides to hitch his horse to an already existing large company. I think it's pretty unlikely given the better payoffs they can get from VCs.

    Three MIT/Princeton Ph.D. friends of mine joined a startup Onshape a few years ago. I always admired their bet because it seemed decently high probability to work out. Even though they joined late, the team was just really good. The latest round shows it has a valuation of $750 million to $1 billion. I also saw an article that one of the graphics researchers, Pat Hanrahan, is worth $1 billion because of his startup. Honestly, starting these successful companies is probably a lot more exciting than the glacial academic world, but one has to avoid all the problems that plague most startups and have a lot of luck.

    @Chris: I hope you have Copyright permission for all these images. Would not want to be trolled by a Copyright troll!
    Nov 14, 2015. 12:36 PM | 2 Likes Like |Link to Comment
  • Are Diamonds BS? [View article]
    My wife commented that she is not interested in mutual banks, and likes her ring. ;-)

    The part about monetizing kids was hilarious. My Dad made me pay for ski team by selling poinsettias to local businesses before Christmas. We would load them all into our pickup truck, and deliver them all. Good character building exercise. I am curious if one can do a more modern version of this by going to government auctions, buying tons of random stuff, and having kids resell things on EBay.

    I look forward to the art podcast!
    Nov 13, 2015. 11:26 PM | 1 Like Like |Link to Comment