Wednesday, August 17, 2011

Ignore the data at your own peril

Friday, August 12, 2011

How rare this week is

Markets have just lived through 4 consecutive 90% Trading Days. That is a session where 90% of the stock trading volume and the number of advancers versus decliners is to one sided. These 90% Days are defined by their extreme intensity. They are typically associated with panic selling and on occasion, panic buying.

Four consecutive 90% Days is extremely rare, and according to Lowry’s Technical service, this week was “only the second time since 1940 that four consecutive 90% Days have been registered.” Floyd Norris of the NYT found 3 instances of consecutive 4+% swings.

Tuesday, July 19, 2011

Top Google Adwords

I thought this was cool:

Where Does Google Make Its Money? [ infographic ]

Friday, June 24, 2011

Intelligence - better for the individual or the collective (answered below)

I thought this was so great I am going to reprint the Marginal Revolution post in its entirety (which is attributed elsewhere.
A recent line of research demonstrates that cognitive skills—IQ scores, math skills, and the like—have only a modest influence on individual wages, but are strongly correlated with national outcomes [emphasis mine]. Is this largely due to human capital spillovers? This paper argues that the answer is yes. It presents four different channels through which intelligence may matter more for nations than for individuals: 1. Intelligence is associated with patience and hence higher savings rates; 2. Intelligence causes cooperation; 3. Higher group intelligence opens the door to using fragile, high-value production technologies, and 4. Intelligence is associated with supporting market-oriented policies. Abundant evidence from across the ADB region demonstrating that environmental improvements can raise cognitive skills is reviewed.
The paper is here and the slides are here.
So fascinating.

Thursday, June 23, 2011

Haiku - Motivation

What motivates me?
Respect via money.
Am I good enough?

(Alternative last line: Do I have enough?)

Supporting my post on doing nothing as an OK response

Two weeks ago I wrote on the topic of not reacting to our feelings to act. Today I believe that is more true then ever. I'll offer up an example:

Today, some low-level know-nothing in my company decided to send a simple request to a distribution list that she didn't really understand. We've all been there. We know what happened. It set off a torrent of reply-all messages saying "take me off this distribution" and, helpfully, "stop hitting reply-all". Except they hit reply-all themselves. You see, it's a catch-22. Everyone who replies thinks to themselves "after I send this email where I specifically say 'stop hitting reply-all' then these emails will 100%, definitely stop". Except they don't, because nobody listens to you if you're not a head honcho like Steve Jobs. If Steve Jobs said STFU the email traffic would stop. That instant. No question.

But they're not Steve Jobs. None of us are. We're all anonymous cogs that are just trying to become bigger and bigger cogs so eventually we can be on top of the machine and get access to the controls. The truth is that we only have influence over our cog neighbors. Nobody else listens to us. Or respects us, because they don't know us. These response emails people write are generally short and to the point. They would be effective if people read them. But no one ever does. Unbeknownst to them, they are just further spreading the virus that was the original email. (Aside: scary when you contemplate extrapolating that example to actual and harmful germs. I could easily imagine how an epidemic is spread quickly. "Aw geez I'm not sick")

Inaction is an appropriate response to this type of situation. I can understand someone's impulse that "I'm going to get this to stop myself and everyone will thank me for it". If that's you, maybe your best option is to sit on your hands. Or if you really have to be pro-active, create a filter that automatically takes emails with that subject line or distribution list to the trash. But, for God's sakes man, don't hit reply all.

*I'm going to continue to document situations where it's best to do nothing. I think this is really interesting.

Friday, June 10, 2011

You don't have to act on every impulse

I got on the elevator this morning after buying my Cherry Coke Zero, the lifeblood of my workweek, at the canteen store in the sub-basement. Another woman gets on. I'm standing in the elevator operator position so I say ask her which floor she wants to go to. She says "lobby". Because our building's elevator software is programmed to always stop on the first floor, instead of pressing the 'L' button, I said "oh, ok. We'll hit that on the way up."  All of the elevators are programmed that way. It is inconvenient, but everyone knows the deal. I think she felt slighted that I didn't act on her request, so instead of just trusting me that the elevator would stop where she wanted, she reaches over to push the button. But it was too late, we were already there, the doors were already opening. Just as I said they would. I think it was less about being correct than it was that my response didn't meet to her expectation that I would act on her request.

This interaction got me thinking - a lot of people demand action. The economy's bad, do something! $787 billion stimulus didn't work, do some more! Oh shit, my portfolio is down 30%, these stocks are no good, I need to sell them!

But that's not the case. When things are happening, you don't have to participate, especially with investing. Sometimes the best course is inaction. If the pain is too unbearable, don't log into the accounts, throw away the monthly statements unopened. By all means, know what's going on with the companies you invest in, but ignore Mr. Market. You don't have to trade with him.

The point is, if you become aware of some of our tendencies as people that you can correct those behaviors. So don't automatically call for something to be done just because you perceive there to be a problem. A lot of the time, things resolve themselves.

Thursday, June 2, 2011

Tuesday, May 31, 2011

In finance, they call it data mining

Source: the wonderful xkcd.

Tuesday, May 24, 2011

Ira Sohn Investment Idea Contest

On Friday, I completed my entry to the Ira Sohn Investment Idea Contest, a major investment contest with many heavy-hitters among the list of speakers. They include: Bill Ackman, Seth Klarman, Carl Icahn, David Einhorn, Joel Greenblatt, and Steve Eisman. On Monday, I was delighted to find out I was chosen among the semi-finalists, which means I will be able to attend. Included below is a copy of my entry.
Stay tuned, I will be posting my notes from the conference later in the week.
In the interest of full disclusure, I am long HPQ.
Your Investment Idea
Hewlett-Packard Company (HPQ)
$44.00; I believe HP's lowered third quarter guidance has led to a market overreaction and will lead to an earnings surprise. After they beat concensus estimates later in the year, investors will value HP on a comparable basis to the industry. With even a conservative valuation (11x earnings) this would place HP in the mid-$40s.
Companies engaged in the diversified computer systems industry such as IBM, Dell, Cisco, and EMC Corporation.
Catalyst - Please explain what action, event, situation or future realization will cause the market to recognize the value discrepancy that you observe. I expect to wait until the third or fourth quarter results are announced, which I fully expect to top the dampened expectations. In other words, I believe that their continued profitability will prove to investors they have overreacted to a nonfactor like guidance.
Hewlett-Packard issued a second quarter press release before the opening of the market on May 17, 2011. In the release, HP reported beating the consensus second quarter earnings estimates ($1.24 vs $1.21), but went on to lower their guidance for the full year citing a tough PC market and weak consumer demand. Investors punished the stock and it opened 6% lower than the close. It has since shed 10% since before the announcements. HP is now trading near its 52-week low at a P/E of 9.2. The market has vastly overreacted.
I believe that the lowering of expectations is setting up an earnings surprise situation because, fundamentally, the public has a misperception of HP's business model and in turn value the company inappropriately. The investing public believes HP is a commodity company yet 63% of its 2010 operating earnings came from recurring revenue streams such as services, networking, and software. Aside from the PC group, none of the other business lines have seen any decline since CEO Leo Apotheker took the helm after Mark Hurd's exit in November. In fact, servers, storage, and networking revenues were up 15% year-over-year, software revenues were up by 17%, and financial services revenues increased by 17% as well. A decline in consumer demand may lower the top-line revenues, as these are HP's most competitive business lines, but it will tend to increase their margins. It will not have the devastating impact on their business that people expect; rather, it will be a symptom of the continued evolution of their business model into a higher margin company.

Investors are discounting the steadiness of HP's earnings stream, not to mention their continued growth in their more profitable services business line. I think it's paradoxical for second quarter GAAP earnings to grow 15% year-over-year and increase gross margins by 1%, and have the market reaction to be to knock 10% off their market cap.

HP is still massively profitable and throwing off enormous amounts of cash which they are using to reward their shareholders. They generated $4 billion of cash in the second quarter and a 22% return on equity. They only paid out $182 million in dividends, but they returned $2.7 billion to the shareholders by repurchasing approximately 64 million shares of stock. They have authorization to repurchase another $8.6 billion in stock and the cash to do it with ($12 billion, or around $6 a share); at present prices this could pull an addition 237 million shares off the market and have a significant impact on their future earnings results. Not to mention the secondary affect it will have on their market price. All of these factors combine to add to the margin of safety of this trade.

Despite being in the tech industry, which doesn't lend itself to value plays very often, HP passes even Ben Graham's stock screener. Their earnings yield (10.9%) is many multiples over the two times the AAA-bond yield (2.8%) criterion. Their total debt ($23 billion) is well less than the 2/3 tangible book value ($68 billion) needed to pass. They do, however, fall short of having a dividend yield (0.9%) of at least two-thirds of the AAA-bond yield, but this is only a crude measure. If we take into account the large stock buybacks that dwarf the declared dividends, we can be sure they are returning a large amount of earnings to their shareholders.

I believe Ben Graham's requirements for purchase of a "bargain issue" from chapter 7 of The Intelligent Investor exactly fit HP's current situation. For one, HP has reasonable stability in its earnings, not only in consistent profitability but also in topping expectations. Even through the financial crisis, HP did not take the large writedowns that plagued other firms. They had only profitable quarters. In HP's worst quarter, Q2 of 2009, it still earned $0.86 a share. According to Graham, a potential investment should have significant size and financial strength. With a $78 billion market cap and $12 billion in the bank, HP does. The $23 billion in debt may be troubling at first glance, but nearly 40% of this figure are short-term borrowings on which they are paying very little (roughly 2% weighted average interest rate), by historical standards, in interest expense. Beyond the $1.75 billion in debt that becomes due this month, there will be no other due dates until March 2012 so the financial risk in the near term is minimal. As already determined, HP is trading well below both its average price and a reasonable P/E valuation based on either its industry position or its prospects. HP passes every Graham requirement to be considered a suitable investment for a defensive investor.

When Hewlett-Packard beats expectations in the third or fourth quarter, Apotheker will emerge from Mark Hurd's shadow and HP will again be a Wall Street darling. Within the next year, as Apotheker's HP proves itself, investors will value the stock closer to the industry average of 14.8. (For comparison - its closest competitor, IBM, which is three times as large, trades at a multiple of 14.3) I've cited my price expectation at 44, which represents a 22% premium to today's market value and covers my required rate of return (which I borrowed from Warren Buffet) of 15%. I believe this is a conservative estimate which provides the investment with a wide margin of safety. Even if HP were to earn exactly what it did in the third quarter last year (which would actually be a decline in total earnings based on the continuing repurchase of shares) and was only valued at 11 times the trailing twelve months earnings, then it would still rise up to the mid-40s. Were it to trade at the industry multiple previously cited, HP could easily trade into the mid-50s. To the best of my ability, I believe Hewlett-Packard represents an excellent risk-reward tradeoff: downside protection based on their industry position and financial history with significant upside potential based on their investment in higher margin and growth industries. This is a classic Graham-type value trade with an embedded option on cloud computing.

Tuesday, May 17, 2011

Notable and Quotable from Better Lucky Than Good

I just finished Better Lucky Than Good, a book on general investing theory. This book is more for the beginner than it is for the advanced investor. In fact, it is probably the perfect gift for an investment adviser to give to a new client. But it didn't satisfy me. I was tricked by the sub-title: "How savvy investors create fortune with the risk-reward ratio". That sounded to me like a technical exposition on balancing risk and reward, which is what drew me in. I was disappointed to say the least.
But I wanted to share a few of my favorite quotes, because on some level the book was helpful. You may find some of the basic accounting quotations not particularly relevant, but I wanted to denote them for my future reference. It's always good to brush up on things you don't use everyday, particularly when it comes to accounting.
  • The cornerstones of a good investment philosophy: a strong business model, good financials, an attractive valuation, and diversification.
  • Fear of being left behind is a powerful force and has caused many investors to make irrational decisions.
  • Paying attention to trends in analysts' comments or changes in them can help you make better investment decisions.
  • In looking at earnings estimates, analyst the trend over the last 60 days. Look for a clear trend of rising estimates (good) or falling estimates (bad) and pay attention to the actual [relative] size of the changes.
  • If you can learn to control your emotions, make rational decisions, and be willing to part with an investment, you will increase your overall returns.
  • Business and investing conditions change, so should your portfolio.
  • #1 Rule of Investing: Only do what allows you to sleep at night.
  • Use earnings estimate revisions as a signal to do more research.
  • If intangibles account for a significant portion of total assets, then shareholders equity could be overstated.
  • Beware if gross margins are narrow, especially if they are 10% or less. Such small gross margins suggest the company lacks pricing power.
  • A sharp increase or decrease in working capital should be examines. It could be an early sign the company is experiencing problems.
  • If a stock has a yield similar to bonds, shareholders are not being reimbursed for the additional level of risk.

Friday, May 13, 2011

Why Hedge Fund Managers Quit

In 2008 and 2009 there were a number of stories about money managers closing down their funds only to open a new one a short time later. Why would someone do that? Because they have the incentive to do so. Incentives matter. 

Knowing this intuitively, I wanted to help convey that incentive visually so I created the graph below. As you can see, as the losses begin the percentages required to get back to even (in financial pjargon it is referred to as the highwater mark) get higher and higher. Notice the logarithmic scale on the left axis.

Percentages don't speak to everyone so I added a time dimension by creating the right axis. If you assume  that the person could earn 20% (a very good return and well over the major indices' averages) constantly (an even bigger assumption than the return because of the volatile nature of stocks) until they earn back all of the loss then for a given % loss on the x-axis you can see how many months it would take to wait for the recovery on the y-axis. As the chart indicates, if a hedge fund manager loses 15% of his (your)  assets, without considering another gyration in the market it would take a manager a full year to reach the highwater mark. A 36% drop, which is similar to what investors witnessed for the full 2008 calendar year, would take three full years to recover. The highwater mark is particularly important in the hedge fund world, because they often have a rule in their contacts which requires them to get back to the highwater mark in order to earn the management fee (usually 2% of assets which is substantial for large funds).

So, facing no possibility of fees in the near future and with the possibility of things taken another downward turn the manager has the incentive to take a rational (not the most moral) step - close down the current fund that is below the highwater mark and create a new fund where he can start getting paid immediately.

Thursday, May 12, 2011

Best Passages from Peter Lynch's Beating the Street: Part 3

OK, let's wrap this up:
  • I don't think of [shopping] as browsing. I think of it as a fundamental analysis on the intriguing lineup of potential investments, arranged side by side for the convenience of stock shoppers.
  • The very homogeneity of taste in food and fashion that makes for a dull culture also makes fortunes for owners of retail companies and of restaurant companies as well. What sells in one town is almost guaranteed to sell in another.
  • You want to avoid the retailers that expand too fast, especially if they're doing it on borrowed money.
  • As a rule of thumb, a stock should sell at or below its growth rate.
  • Digging where the surroundings are tranquil and pleasurable may prove to be as unrewarding as doing detective work from a stuffed chair. You've got to go into places where other investors and especially fund managers fear to tread, or, more to the point, to invest.
  • Reading a prospectus is like reading the fine print on the back of an airline ticket. Most of it is boring, except for the exciting parts that make you never want to get on an airplane or buy a single share of stock again.
  • Whenever book value comes up, I ask myself the same question we all ask about the movies: is this based on a true story or is it fictional?
  • In a highly leveraged company, bank debt is dangerous, because if the company runs into problems the bank will ask for its money back.
  • I'm always on the lookout for great companies in lousy industries. A great industry that's growing fast, such as computers or medical technology, attracts too much attention and too many competitors. When an industry gets too popular, nobody makes money there anymore.
  • In a lousy industry, one that's growing slowly if at all, the weak drop out and the survivors get a bigger share of the market.
  • Peter's principle #16: In business, competition is never as healthy as total domination.
  • The greatest companies in the lousy industries share certain characteristics. They are low-cost operators, and penny-pinchers in the executive suite. They avoid going into debt. They reject the corporate caste system that creates white-collar Brahmins and blue-collar untouchables. Their workers are well paid and have a stake in the companies' future. They find niches, parts of the market that bigger companies have overlooked. They grow fast--faster than many companies in the fashionable fast-growth industries.
  • Peter's principle #17: All else being equal, invest in the company with the fewest color photographs in the annual report.
  • Peter's principle #18: When even the analysts are bored, it's time to start buying.
  • I never hang up on a source without asking: what other companies do you most admire?
  • This is the way you look at a long-shot S&L: find out what the equity is and compare that to the commercial loans outstanding. Assume the worst.
  • Buying on the bad news can be a very costly strategy, especially since bad news has a habit of getting worse.
  • Buying on the good news is healthier in the long run, and you improve your odds considerably by waiting for the proof.
  • This is a very useful year-end review for any stockpicker: go over your portfolio company by company and try to find a reason that the next year will be better than the last. If you can't find such a reason, the next question is: why do I own the stock?
  • Owners can always give you a reason their horses will win, and they are wrong 90 percent of the time.
  • A high p/e ratio, which with most stocks its regarded as a bad thing, may be good news for a cyclical. Often, it means that a company is passing through the worst of the doldrums, and soon its business will improve, the earnings will exceed the analysts' expectations, and fund managers will start buying the stock in earnest.
  • It's perilous to invest in a cyclical without having a working knowledge of the industry and its rhythms.
  • The most important question to ask about a cyclical is whether the company's balance sheet is strong enough to survive the next downturn.
  • One useful indicator for when to buy auto stocks is used-car prices. When used-car dealers lower their prices, it means they're having trouble selling cars, and a lousy market for them is even lousier for the new-car dealers.
  • In the stock market it rarely pays to take yesterday's news too seriously, or to hold an opinion too long.
  • Peter's principle #20: Corporations, like people, change their names for one of two reasons: they've gotten married, or they've been involved in some fiasco that they hope the public will forget.
  • A simple way to make a nice living from troubled utilities: buy them when the dividend is omitted and hold on to them until the dividend is restored.
  • There are always respected investors who say that you're wrong. You have to know the story better than they do, and have faith in what you know.
  • For a stock to do better than expected, the company has to be widely underestimated. Otherwise, it would sell for a higher price to begin with. When the prevailing opinion is more negative than yours, you have to constantly check and recheck the facts, to reassure yourself that you're not being foolishly optimistic.
  • Here's the key question to ask about a risky yet promising stock: if things go right, how much can I earn?
  • There are different shades of buys. There's the "what else am I going to buy?" buy. There's the "maybe this will work out" buy. There's the "buy now and sell later" buy. There's the "buy for your mother-in-law" buy. There's the "buy for your mother-in-law and all the aunts, uncles, and cousins" buy. There's the "sell the house and put the money into this" buy. There's the "sell the house, the boat, the cars, and the barbecue and put the money into this" buy. There's the "sell the house, boat, cars, and barbecue , and insist your mother-in-law, aunts, uncles, and cousins do the same" buy.
  • During periods when mutual funds are popular, investing in the companies that sell the funds is likely to be more rewarding than investing in their products.
  • A healthy portfolio requires a regular checkup.
  • Rejecting a stock because the price has doubled, tripled, or even quadrupled in the recent past can be a big mistake. Whether a million investors have made or lost money on Chrysler last month has no bearing on what will happen next month. I try to treat each portential investment as if it had no history--the "be here now" approach. Whatever occured earlier is irrelevant. The important thing is whether the stock is cheap or expensive today at $21-$22, based on its earnings potential of $5 to $7 a share.
  • You can beat the market by ignoring the herd.
  • Behind every stock is a company. Find out what it's doing.
  • YOu have to know what you own and why you own it.
  • Long shots almost always miss the mark.
  • Everyone has the brainpower to make money in stocks. Not everyone has the stomach.

Best Passages from Peter Lynch's Beating the Street: Part 2

I haven't had much time to go through Peter Lynch's Beating the Street since I last posted, but today I have some free time and would like to get these notes down for yours and my own reference.
  • This is one of the keys to successful investing: focus on the companies, not on the stocks.
  • My methods were not much different from an investigative reporter - reading the public documents for clues, talking with intermediaries such as analysts and investor relations people for more clues, and then going directly to the primary sources: the companies themselves.
  • Every stockpicker could benefit from keeping a notebook of [stock] stories. Without one, it's easy to forget why you bought something in the first place.
  • If you're prepared to invest in a company then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won't get bored.
  • A computer company can lose half its value overnight when a rival unveils a better product, but a chain of donut franchises in New England is not going to lose business when somebody opens a superior donut franchise in Ohio.
  • When you have to concern yourself with what the person behind you thinks about your work, it seems to me that you cease to be a professional. You are no longer responsible for what you do. This creates a doubt in your mind as to whether you are capable of succeeding at what you do--otherwise, why would they be monitoring your every move?
  • Peter's Principle #8: When yields on long-term government bonds exceed the dividend yield of the S&P 500 by 6 percent or more, sell your stocks and buy bonds.
  • Why investors attempt to prepare for total disaster by bailing out of their best investments is beyond me. If total disaster strikes, cash in the bank will be just as useless as a stock certificate. On the other hand, if total disaster does not strike (a more likely outcome, given the record) the "cautious" types become the reckless ones, selling their valuable assets for a pittance.
  • No matter how well you think you understand a business, something can always happen that will surprise you.
  • Bargains are the holy grail of the true stockpicker. The fact that 10-30 percent of our net worth is lost in a market sell-off is of little consequence. We see the latest correction not as a disaster but as an opportunity to acquire more shares at low prices. This is how great fortunes are made over time.
  • [Sarcastically talking about a bad call on IBM] you aren't really a fund manager unless you have Big Blue in the portfolio.
  • How much time you spend on researching stocks is directly proportional to how many stocks you own.
  • In stocks as in romance, ease of divorce is not a sound basis for commitment. If you've chosen wisely to begin with, you won't want a divorce. And if you haven't you're in a mess no matter what. All the liquidity in the world isn't going to save you from pain, suffering, and probably a loss of money.
  • Peter's principle #11: The best stock to buy may be the one you already own.
  • Peter's principle #12: A sure cure for taking a stock for granted is a big drop in the price.
  • When your best-case scenario turns out to look worse than everybody else's worst-case scenario, you have to worry that the stock is floating on a fantasy.
  • Tbere's no shame in losing money on a stock. Everybody does it. What is shameful is to hold on to a stock, or, worse, to buy more of it, when the fundamentals are deteriorating.
  • Peter's principle #13: Never bet on a comeback while they're playing "Taps".
  • Here's a tip from experience: before you invest in a low-priced stock in a shaky company, look at what's been happening to the price of the bonds.
  • Cyclicals are like blackjack: stay in the game too long and it's bound to take back all your profit.
  • Stockpicking is both an art and a science, but too much of either is a dangerour thing. A person infatuated with measurement, who has his head stuck in the sand of the balance sheets, is not likely to succeed. If you could tell the future from a balance sheet, then mathematicians and accountants would be the richest people in the world by now.
  • A pile of software isn't worth a damn if you haven't done your basic homework on the companies.
  • I've learned to think of investments not as disconnected events, but as continuing sagas, which need to be rechecked from time to time for new twists and turns in the plots. Unless a company goes bankrupt, the story is never over. A stock you might have owned 10 years ago, or 2 years ago, may be worth buying again.

Monday, May 9, 2011

Is it possible to be scared of a book?

Ordinarily I would say no. But as I grabbed The Intelligent Investor off the shelf this weekend for the first time since I bought it in 2008, I realized it is. This book has been called the greatest investment book of all time by Warren Buffett! It was written by the father of value investing, Ben Graham. For an analogy,

Sun Tzu : War :: Ben Graham : Investing.

Suffice it to say, I was intimidated. Enough to put off reading the book for over three years. If I read the book and then didn't live up to the legends who internalized this tome and went on to rack up the best records in the business, then I'd be a failure. If I could just delay reading it then I could delay the day I would have to look critically at my own performance. People love scapegoats, and not reading The Intelligent Investor became mine. But yesterday something changed. I realized I am not succeeding according to Coach Wooden's definition of success:

“Success is peace of mind which is a direct result of self-satisfaction in knowing you made the effort to become the best of which you are capable.”

I know that I will never realize my potential as an investor without this knowledge. So I grabbed it off the shelf and began. I'm ready now. I'm no longer afraid.

Thursday, May 5, 2011

April Reading List

by Peter Lynch, John Rothchild
Comment: "This book is pretty good. It has great and practical advice for both the novice and the advanced stockpicker. The only downside is that the stock picks are dated now. For instance, he recommended Allied Capital which has since gone bankrupt and is the subject of David Einhorn's book which I finished last month. But just because the recommendations are not valid anymore doesn't mean you can't learn from Lynch's thought process and reasoning. I found these passages invaluable."
by Paul A. Samuelson, William A. Barnett 
Comment: "I hardly ever do this and I hate to say it, but I quit this book before I finished it. It is a little more technical and less accessible than other books on economists that I've read, e.g. "Lives of the Laureates" and "The Worldly Philosophers". I also found it to be repetitive because a considerable amount of the interviews were with people I've already heard describe their background in depth. "
by Isaac Asimov
Comment: "This book was fantastic. I couldn't put it down.
The Foundation trilogy, of which this is not a part but it is in the line of books, won a special Hugo award for best science fiction series ever. This is the first book in that line, so I started at the beginning. I can't wait to read the rest.
by Frank Brady
Comment: "This book was fantastic. Frank Brady knows more about Bobby Fischer than any other living person.
I loved following Bobby's fanatic/obsessive preparation and rise in the chess world and then hated what the pursuit of the world's #1 position did to him as he descended into a sad character on the fringe of society. This book was not exactly an apology for Fischer, but it did have those qualities. For example, Brady gave a number of reasons why Fischer may have become anti-Semitic, one being to strike back at the US Chess Federation.
Reading this book got me so excited about chess that I am going to start learning the game. I think it will give me skills on thinking strategically.
This book is definitely worth your time.
by Alex Berenson, Mark Cuban
Comment: "What a fantastic read. Alex Berenson is a captivating writer who masterfully wove together many different narratives - accounting, government regulatory, and stock market history as well as the stories of corporate misdoings by Computer Associates, Enron, Tyco, and Worldcom. "

Common Stocks and Uncommon Profits and Other Writings (Wiley Investment Classics)by Philip A. Fisher, Ken Fisher
Comment: "My expectations for this book were high. I was severely disappointed. The best part of this book is that it's over. The worst part of this book is that Phillip's son Kenneth owns the rights to the book. He took that privilege and ran with it. Kenneth, a billionaire investor, droned on for a dozen pages of prologue before writing another 27 for the introduction. If you happen to pick up this copy, and I suggest that you don't, skip all of Kenneth's writing. It's horrible.
Phillip writes like I hope that I don't: overly verbose with too complicated a structure. His writing also has too many references to previous statements so quoting him is impossible. In my view, the best investment writers drop little nuggets of wisdom. Because of the way Fisher writes, you won't get much of that from this book. The other problem with the writing is that there are too many examples so the book doesn't stand up historically. I don't want to read about Dow Chemical in the '50s or Motorola in the '70s. Both of these stocks are also written about because Fisher owned them which I found highly annoying.
I did find bits and pieces that I believe was adopted by other investment managers, e.g. three year rule, buying something when it is priced well and not haggling over 1/8ths.
However, I recommend that you skip this book.

Wednesday, April 27, 2011

Best Passages from Peter Lynch's Beating the Street: Part 1

I just finished Peter Lynch's Beating the Street. While the stock picks are dated and not useful anymore, the insights into Lynch's stock thought process were invaluable. I'd like to share some of them with you by recording some of the passages I underlined:
  • [On retirement] there comes a point at which you have to decide wheter to become a slave to your net worth by devoting the rest of your life to increasing it or let what you've accumulated begin to serve you.
  • Unfortunately, buying stocks on ignorance is still a popular American pastime...When people discover they are no good at baseball or hockey, they put away their bats and their skates and they take up amateur golf or stamp collecting or gardening. But when people discover they are no good at picking stocks, they are likely to continue to do it anyway.
  • The stock market is the one place where the high achiever is routinely shown up.
  • A retired fund manager is qualified to give only investment advice, not spiritual advice.
  • Peter's Principle #3: Never invest in any idea you can't illustrate with a crayon.
  • IBM is an approved stock that everybody knows and a fund manager can't get into trouble for losing money on.
  • The key to making money in stocks is not to get scared out of them.
  • In dieting and in stocks, it is the gut and not the head that determines the results.
  • A successful investor does not let weekend worrying dictate his or her strategy.
  • Peter's Principle #4: You can't see the future through a rearview mirror.
  • [Successful investors] somehow manage to develop a disciplined approach to investing that enables us to block out our own distress signals.
  • If you don't buy stocks with the discipline of adding so much money a month to your holdings, you've got to find some other way to keep the faith.
  • Whenever I am confronted with doubts and despair about the current Big Picture, I try to concentrate on the Even Bigger Picture.
  • The Even Bigger Picture tells us that over the last 70 years, stocks have provided their owners with gains of 11 percent a year, on average, whereas Treasury bills, bonds, and CDs have returned less than half that amounts.
  • A successful stockpicker has the same relationship with a drop in the market as a Minnesotan has with freezing weather. You know it's coming, and you're ready to ride it out, and when your favorite stocks go down with the rest, you jump at the chance to buy more.
  • Whereas companies routinely reward their shareholders with higher dividends, no company in the history of finance, going back as far as the Medicis, has rewarded its bondholders by raising the interest rate on a bond. Bondholders aren't invited to annual meetings to see the slide shows, eat hors d'oeuvres, and get their questions answered, and they don't get bonuses when the issuers of the bonds have a good year. The most a bondholder can expect to get is his or her principal back, after its value has been shrunk by inflation.
  • People who sleep better at night because they own bonds and not stocks are susceptible to rude awakenings.
  • Here's a good strategy for convertible investing: buy into convertible funds when the spread between convertible and corporate bonds is narrow (say, 2 percent or less) and cut back when that spread widens.
  • Fund managers and athletes have this in common: they may do better in the long run if they're brough along slowly.
  • Peter's Principle #7: The extravagance of any corporate office is directly proportional to management's reluctance to reward the shareholders.
  • Flexibility is the key. There are always undervalued companies to be found somewhere.
  • I always ended these discussions [with company's management or investor relations] by asking: which of your competitors do you respect the most?
  • Small [caps] is not only beautiful, it also can be lucrative.
I think that's long enough for one post.

Friday, April 15, 2011

Haiku - You deserve some time off

I used to love work,
Ran hard after the carrot.
Where has my life gone?

Thursday, April 14, 2011

Bobby Fischer is a badass

Two of my favorite quotes so far in the book "Endgame", a biography of Bobby Fischer:
"But why would Geller expect Fischer to take a quick draw? Fischer's entire record as a player shows his abhorrence of quick draws and his wish at every reasonable (and sometimes unreasonable) occassion to play until there is absolutely no chance of winning. No draws in under 40 moves is an essential part of his philosophy."
"Taking nothing for grandted was one of the key's to Fischer's success."
 The whole book is worth a read and is easily accessible for the chess outsider like me. I love reading biographies. The more you read the more you realize there is a pattern of success: hard work bordering on obsession. For instance, it was estimated that between his ninth and eleventh birthdays Bobby played a thousand games a year. Between his eleventh and fourteenth birthdays he played 12,000 games a year. Another example: in 1970, Fischer left NYC to go to the Catskill mountains to prepare for the World Championship match against Spassky. In the four months that he trained there he spent 12 hours a day 7 days a week reading, thinking, and preparing for one match.

I'll have more on this book after I finish it.

Tuesday, April 12, 2011

Notable and Quotable from Alex Berenson's "The Number"

I just finished The Number: How the Drive for Quarterly Earnings Corrupted Wall Street and Corporate America. What a fantastic read. Alex Berenson is a captivating writer who masterfully wove together many different narratives - accounting, government regulatory, and stock market history as well as the stories of corporate misdoings by Computer Associates, Enron, Tyco, and Worldcom. It was a great read.

As I've written before, I like to underline as I go along. Here are some of my favorite passages, which will give you an idea of how good a writer Berenson is. All of the points are attributable to him unless otherwise specified.
  • "It is difficult to get a man to understand something when his salary depends on his not understanding it." -Upton Sinclair
  • On Wall Street, not all numbers are created equal.
  • Earnings per share is the ultimate benchmark of a company's success or failure.
  • Earnings per share is the number for which all the other numbers are sacrificed. It is the distilled truth of a company's health. Earnings per share is the number that counts.
  • But the trouble with bubbles...the trouble with bubbles is they don't last.
  • Accountants are the plumbers of capitalism, unappreciated but vital to the system.
  • Bear markets have villains. Bull markets have heroes.
  • A conglomerateur who runs out of acquisitions is a very unhappy conglomerateur. He's stuck managing the companies he has already bought, which are all too often third-rate companies in slow-growth industries. Winners buy; losers manage. Worse, the skills that make a successful conglomerateur-salesmanship, impatience with details, and a huge ego-are more or less the opposite of the skills needed to successfully manage a company.
  • Diversification is no protection against loss if that diversification consists of owning a diverse group of second-rate stocks.
  • If Wall Street's history proves anything, it is that investors of all sizes examine financial statements much less closely when stocks are rising.
  • In Wall Street's version of heaven, the strip clubs don't have covers and every month is January. In hell, on the other hand, the calendar always reads October.
  • "You start as an analyst, but you end as an ambassador."
  • Bill Barnhart of the Chicago Tribune: "When you boil down the entirety of a corporate enterprise to a few pennies, the chances for error, misunderstanding and mischief are immense."
  • [Stock] options are worth something even when they're not worth anything. They are as close as Wall Street comes to believing in an afterlife.
  • Roger Lowenstein on executive compensation, specifically the abuse of stock options: "By turns, a system designed to motivate became one to simply enrich."
  • The clash between longs and shorts is about more than money; it is the eternal battle of hope and realism.
  • Short-sellers are the little voice in the middle of the night, the voice a CEO cannot allow himself to hear: Your numbers are crap. Your new product is way behind schedule. You're booking sales for which you'll never get paid. You're burning cash. The competition is ruinous. You don't have a chance. That $200 million you raised last year, it's gone. What now? To executives, that voice is death, so the shorts are killers.
  • During the worst panics, the market does not make even a halfhearted attempt to rally. It closes at the day's lows, and one has the sense that if not for the 4 P.M. bell, prices would fall until the Dow and the S&P 500 and every stock in them all hit zero, and even then traders would try to sell short. The very concept of a bottom is laughable. Only a night's rest can bring sanity back to the world...But the worst crashes do not last just one day.
  • After the first day of a crash, no one can know where it will end. It is a force of nature as much as any hurricane or earthquake.
  • Michael Lewis on the 1990s: "A boom without crooks is like a dog without fleas...A healthy free-market economy must tempt a certain number of people to behave corruptly."
  • It's time for all of us, investors and executive and managers and employees, to admit what we already know: Just because a company hits its earnings targets doesn't mean it is flourishing; just because it misses for a quarter or two doesn't mean that it is failing. Just because a company has grown 15 percent a year for a couple of years in a row doesn't mean it can grow 15 percent a year forever. Only a handful of companies has earnings that can be smoothly plotted more than a few months in advance. Business doesn't work that way. Life doesn't work that way. [Emphasis my own] Planes run late; meetings go badly; contracts don't get signed when they're supposed to. Hire good people is hard; making good acquisitions is harder. Even well-run companies have a tough time keeping decent financial controls, figuring out where to invest research dollars, and satisfying investors and the media. And not ever investment pays off in three months. Sometimes smaller profits now can mean a better business and bigger profits later.
  • The number is a lie. We need it; we can't avoid it. But it's still a lie.
Hush thee, my babe, Granny's bought some new shares,
Daddy's gone out to play with the bulls and the bears,
Mommy's buying on tips, and she simply can't lose,
And baby shall have some expensive new shoes!
-September 1929 in the Saturday Evening Post

Monday, April 11, 2011

Notes from Seth Klarman's Youtube Videos

I came across some videos of successful money manager Seth Klarman of the Baupost Group. Klarman is the author of the $900 book, Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor. When I was watching I was blown away with the rapid-fire investment truisms. So I decided to jot them down:
  • value investing is a risk averse approach - focus on risk before return
  • Ben Graham's net working capital test - if you can buy a stock for less than 2/3 its networking capital (working capital - all liabilities) then that's a bargain. You are buying a company for less than you could liquidate the business for.
  • three underlying pillars:
    • Focus on risk before return. Focus on multiple scenarios, i.e. what can go wrong, what's the worst thing that can happen. Create a range of possible outcomes, don't rely on single point estimates. Volatility isn't risk, volatility creates opportunities.
    • The world is oriented toward relative performance. People who are risk averse should be focused on absolute returns. If you are focused on absolute returns, the idea of losing other people's money is abhorent. If you're focused on relative performance then you're OK with that.
    • The importance of being bottom-up and not top-down. Interest rate and the stock market direction forecasting are incredibly difficult to perform well.
  • Baupost. When they set it up they wanted to have flexibility - a wide mandate - in order to have as large an opportunity set as possible. The more weapons available in your mandate  the better chances you will have to take chances of mispricings. They also set it up to have capital alongside their clients. They don't allow people to have significant holdings outside the firm. The firm is highly collaborative; people are able to make an impact even at a junior level. Capital isn't siloed or allocated to specific people; it is able to move to different opportunities as they arise. Baupost's edge is in complicated situations.
  • To invest in something you need an edge. They need to have a reason that they will outperform. The biggest edge someone can have is a long-term orientation. It's easy to say you do, but harder to implement it. Also, you need a catalyst: what is going to cause a mispricing to correct itself. Or a supply/demand imbalance like distressed debt where, as a bond is down-graded, there is forced selling.
  • Spin-offs and index inclusion/exclusion are both good sources for deals.
  • Relationships are important. They work hard to have the best clients and the best brokers. Trust. The team has worked together for a long time.
  • Pharmaceutical company that invented a number of drugs - PDL Biopharma 30% IRR on the likely collections from drug patents.
  • Risk vs. Return:
    • Intensive sensitivity analyses on everything they do. A whole variety of assumptions. E.g. what if defaults are 5%, 10%. If a security, even with Depression-like scenarios, passes these tests then it is a good buy.
  • Easy to find things that aren't efficiently priced.
  • Baupost never uses modern finance, i.e. WACC or ROIC. Instead, use a range of values.
  • Often the greatest opportunities are around the peripheries of things. If people are looking at
    the S&P 500, you should look at the 501st company. Where do we earn enough to buy and hold this entire company?
  • Which value managers do you admire?
    Buffett and Munger for one.
    FPA Crescent team. Southeastern Asset Management. Tweedy Brown.
    Paul Singer. David Abrams. Perry Capital. Jeff Hallis. Michael Lowenstein. Steve Mandel.
  • Looking for egregious mispricings. Looking for low-risk, high-return situations.
  • Never believe that something will go well beyond fair value. We don't hold on for the last nickel. Don't fall in love with a stock because it acts well.
  • One of the biggest mistakes that investors make is overdiversification. This presupposes that losses will be one-off events rather than the entire market moving against you. This limits your return and doesn't really limit your risk that much.
  • You need to be able to tell a great idea from a good idea.

Thursday, April 7, 2011

What I Learned from Phillip Fisher's Common Stocks

I would not recommend the book Common Stocks and Uncommon Profits and Other Writings (Wiley Investment Classics) for anyone. However, my displeasure with it didn't deter me from finishing it once I picked it up. I don't quit on things. My philosophy is: power through. These are my general feelings on the book, written as part of a review on the Amazon reading list app of LinkedIn:
"My expectations for this book were high. I was severely disappointed. The best part of this book is that it's over. The worst part of this book is that Phillip's son Kenneth owns the rights to the book. He took that privilege, ran with it, and abused the hell out of it. Kenneth, a billionaire investor, droned on for a dozen pages of prologue before writing another 27 for the introduction. If you happen to pick up this copy, and I suggest that you don't, skip all of Kenneth's writing. It's horriblely egotistical, monotonous, and empty of any informational value whatsoever.
Phillip writes like I hope that I don't: overly verbose with too complicated a sentence structure. His writing also has too many references to previous statements so quoting him is very difficult. In my view, the best investment writers drop little nuggets of wisdom that are highly quotable. Because of the way Fisher writes, you won't get much of that from this book. The other problem with the writing is that there are too many examples so the book doesn't stand up historically. I don't want to read about Dow Chemical in the '50s or Motorola in the '70s. Both of these stocks are also written about because Fisher owned them which I also found annoying.
I did find bits and pieces that I believe was adopted by other investment managers, e.g. three year rule, buying something when it is priced well and not haggling over 1/8ths.
However, I recommend that you skip this book."
Not enjoying the book also didn't prevent me from learning. I keep a journal of ideas that I want to keep when I read. I want to share with you those ideas that I came away with from this book. [I cleaned up his gratuitously elongated speech for my own records.]
  • In the case of really outstanding companies, the information is so crystal clear that even a moderately experienced in vestor who knows what he is seeking will be able to tell which companies are likely to be of enough interest to him to warrant taking the next step.
  • You need to have patience if you want to make big profits from an investment. Put another way, it is often easier to tell what will happen to the price of a stock than how much time will elapse before it happens.
  • Doing what everybody else is doing at the moment, and therefore what you have an almost irresistable urge to do yourself, is often the wrong thing to do at all.
  • Just as even the best professional baseball players cannot expect to get a hit more than one out of every three times he comes to bat, so a sizable number of stocks are bound to produce nothing profitable at all.
  • If you want to gauge a management's orientation towards profits (short- vs. long-term) then look to the treatment of customers and vendors. It provides a very good indicator.
  • Stocks should not be bought where the dividend payout is so emphasized that it restricts realizable growth.
  • Practical investors usually learn their problem is finding enough outstanding investments, rather than choosing among too many.
  • Usually a very long list of securities is not a sign of a brilliant investor, but of one who is unsure of himself.
  • To make big money on investments it is unnecessary to get some answer to every investment that might be considered. What is necessary is to get the right answer a large proportion of the very small number of times actual purchases are made.
  • His three principle, two I's and an H: integrity, ingenuity, and hard work.
  • A good place to start with a conservative investment is with an industry's lowest cost producer, because:
    • the higher margin allows the company to weather poor business conditions better
    • the margin also allows the company to earn enough that they won't need to seek additional financing
  • The largest profits in the investment field go to those who are capable of correctly zigging when the financial community is zagging.
  • Contrary opinion is not enough, however. When you do go contrary to the general trend of investment thinking, you must be very, very sure that you are right.
  • Three year rule: each investment should be given three years in order to draw a conclusion from the investment thesis.
  • "If you can't do a thing better than others are doing it, don't do it at all."

Thursday, March 31, 2011

First Quarter 2011 Reading List

I wanted to take some time to share with you my thoughts on the books that I've read in the first three months of the year. In December, I decided to share all of the books that I read in 2010. As a person who reads roughly a book a week, the post was too bulky to be very good. [I was bogged down with studying for the CAIA designation so I slowed down in late February/early March.] So I decided to break it up into quarters. In the future I might do it in a monthly post.

Thursday, March 31
by David Einhorn
Comment: "This book was wonderful. It was exactly the way the book "Confidence Men", the story of the struggle William Ackman had in his pursuit of raising concerns of MBIA, should have been written. Mr. Einhorn grabs the reader's attention from the first chapter. If he weren't already a successful hedge fund manager he would definitely be able to find employment as an author. It was that good. Joel Greenblatt claimed that he read the book in two sittings. That wasn't possible for me, but it did only take me three days. I couldn't put it down.
In all of the books I read I mark passages that are outrageous with !. This book's margins are covered in them. The story of Einhorn's struggle with management is characterized by outlandish claims, horrific valuations, childish rants, and CIA-type operations.
The takeaway question I came away with was: is the cost of being publicly short (and subsequently being right) worth it? With all the strains and scrutiny Mr. Einhorn and Mr. Ackman went through, I'm not sure I can say that it is.

Monday, March 28
by Diane Dreher
Comment: "This book was very interesting for the first 150 pages. That section of the book encompassed most of the self-improvement instruction which was wonderful. I enjoyed how she blended Tao Te Ching passages with both explanations and everyday examples. However, the rest of the book wandered through a miasma of self-congratulatory hippy BS like recycling and bringing your own reusable bags to the grocery store. Not helpful at all. If anything, this book will make me explore the Tao Te Ching further because I found it to be both fascinating and enlightening."

Wednesday, Mar 23
by John Feinstein
Comment: "It is tournament time! I thought I'd get my head in the game by reading a story about Bobby Knight.

This book was a fair portrayal of a complex man. Feinstein describes Knight as a highly loyal, nice, caring, intelligent albeit tempermental and controlling. The book is really an insider's look at the Bobby Knight 1985-86 team, the year after the chair throw at Purdue and the year before his third championship season. It was a season of ups and downs. I think Feinstein did a good job of describing what it was like as a player in Knight's locker rooms even if his narrative of the games was a little too elaborate.

Tuesday, Mar 15
by Jeffrey Pfeffer
Comment: "Great book on power and influence. Stanford Professors Jeffrey Pfeffer lays down the argument to gain more power and then proceeds to detail how you can go about getting it. This book was not just a well written blueprint. Rather, it was pretty thought provoking as well.
For instance, at one point he discusses democratic institutions and how they are the exception, not the rule in all of our society's organizations, be they companies or non-profits or government agencies. It made me question why, growing up and in school, adults always stress voting and consensus-building as the method to make decisions. I think that is just another way we under prepare children for success in adulthood.

Monday, Feb 28
by Warren E. Buffett, Lawrence A. Cunningham
Comment: "The best source for information on Buffett's investment style and thought process is Buffett himself. Lawrence Cunningham effectively organizes Buffett's essays from 30 years of annual reports (not the partnership letters mind you) into very clearly defined narratives that follow a syllabus-like approach. After finishing it, I can't believe what took me so long to find this book. The value that this book provides is well worth the cost and the time to read it. I recommend it to anyone who is at all interested in Buffett."

Tuesday, Feb 15
by Joe Nocera, Bethany McLean
Comment: "Great book on the financial crisis. Nocera and McLean start their book much earlier than the other books in the genre. They explain all of the legislative and regulatory changes as well as the development of the mortgage backed securities and subsequent securitizations that occured in the 1980's and 1990's as laying the groundwork for the 2003-2007 housing bubble. The only shortcoming of this book is that the authors stand on the backs of other books such as Fool's Gold and Too Big Too Fail to quickly go through the narrative of the actual crisis. The meat of this book, and its comparative advantage, is in developing the backstory. I learned a ton about Fannie and Freddie and MBS's by reading this book and I recommend it to anyone with an interest in these topics."

Monday, Feb 7
by Pat Conroy
Comment: "This book is a gripping novel about the "Carolina Military Institute", a not-so-clever euphemism for the Citadel. Having no military background I thought this book might fall flat for me, but that wasn't the case. Pat Conroy weaves many different narratives together superbly, including a discussion on the Vietnam era, the vanity and "what's behind the curtain" in Southern aristocratic society, as well as the solitary man against the established order main narrative.
I've now read three Pat Conroy books in the last four months and I've loved all of them. I encourage you to seek them out. I think I'll eventually pick up "My Losing Season" which is supposed to be more autobiographical about his experience in college because of my positive read of this book.

Monday, Jan 31
by Roger Lowenstein
Comment: "This is the book that all other Buffett books should be judged by. If you want to know about Buffett, not just the man as you'll get in "The Snowball, but also his investing then this is the best book to read."

Tuesday, Jan 25
by William Breit, Barry T. Hirsch
Comment: "This was a Christmas present. Lives of the Laureates is a compilation of 18 lectures given at Trinity University by Nobel laureates in economics. Many of the lectures are thick with names and titles and read more like a bibliography than an autobiography. But then you get to the really interesting economists like William Sharpe or Paul Samuelson who are able to see past the litany of their papers and connect the dots of their careers.
There are many themes in this book, like the fact that they all seemed to become indoctrinated into the mathematics of economics through PAS's "Foundations of Economic Analysis" and the Chicago school thread seemed to run through all of them.

Monday, Jan 24
by Thornton L. O'glove
Comment: "This book was a fantastic exposition on what to watch out for when it comes to a company's earnings. It talked about everything: inventory schemes, nonoperating/nonrecurring income, and increasing/decreasing expenses. I thought it was not just fascinating, but very informative. I can really apply these principles in my own due diligence.
Also, if I get into a doctoral program this fall, I will definitely re-read this book for doctoral ideas because I had at least a dozen in my first pass-through.

Thursday, Jan 13
by C. H. Dalton
Comment: "Despite the shocking title, this book is laugh out loud hilarious satire. Almost every page has a joke that made me chuckle. I never knew a book could be so funny."

Monday, Jan 10
by Lee Eisenberg
Comment: "As the title suggests, this book is about thinking about the rest of your life. But do not be led astray, while it does talk at length about "the Number" the computation of the number is cast aside as an afterthought. The author seems to have an ax to grind with the personal finance industry which he believes spends to much time focusing on the quantitative value of the number while underemphasizing the more important aspect of the number, which is what that money can buy, i.e. happiness. If there is anything that I dislike about the book, which was interesting and engaging if not infuriatingly repetitive, it is the deceptive nature which it breaches into a genre which it clearly is not. If it were actual personal finance then the computation of the number would not be discussed only included as an appendix. Rather it favors a broad discussion of what that money should buy - the pursuit of a passion is the author's preference - so that it functions more as a self-help book to enjoying retirement rather than actually planning for it."

Thursday, Jan 6
by Ryan North, Matthew Bennardo, David Malki !
Comment: "Holiday fun reading!
This book is a collection of short stories revolving around an idea that was spawned by a comic that Ryan North, of Dinosaur Comics fame, printed in 2005. In the comic, T. Rex talks about a machine of death which prints ambiguous readings and is never wrong.
This book was a whole lot of fun, but on a deeper level this book touched on two extremely complex issues, free will and the struggle between order and chaos. I would recommend it to anyone because it was highly entertaining.