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On Hidden Risks and Volatility

by Industry TrendsInvestingThought Leadership

Volatility in investing can be a great thing. The attraction to Bernie Madoff's scam can be better understood by its lack of volatility. His funds showed annual returns of an eerily consistent 10-12% and at one point reported 72 consecutive months of positive returns. His strategy used a split-strike or collar options strategy (not related to baseball or haberdashery), whereby you buy stock, sell a call option, and use the proceeds to buy a put option. It can work, but is not without risk and ha ...

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Costco: Lessons from Member Obsession.

by HDHPsIndustry TrendsMacro Trends

Some call them 'clients,' others,  'guests' or 'customers.' Costco (Ticker: COST, revenue $141B) calls them 'members,' a term that makes you feel like you're part of a special club. It's a club that will not sell you junkExcept bananas. Their bananas are crap.. They do not exaggerate. Theirs is not fake-Enron-style-ethics-virtue-signaling, and they actually list shareholders' interests last. Focus on the whole business: customers, employees, suppliers, communities, and good things will flow (muc ...

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Medical Bankruptcies in America

by Industry TrendsThought Leadership

Markets price goods and services. They also set prices for the value of businesses and offer weighted opinions on political outcomes--they aggregate our revealed preferences. Financial valuation uses multiple approaches to estimate the value of a company, whether a shoe factory, a chain of Tex-Mex restaurants, a software company, a bank, or a law firm. The questions are framed around what a firm is worth relative to: cash flow, net accounting value, similar assets, recent industry transactions ...

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Cadillac Consequences

by EducationHDHPsThought Leadership

Mothers and psychologists remind us that we have a built-in bias to do what's easiest or to follow the path of least resistance. Water and electricity are like this. We are naturally lazy so to stick to an exercise plan, it should be something we like, with shoes left by the bed, perhaps done with a friend, and with a long-term horizon. The alternative is our desire for comfort, shortcuts, quick answers, get-rich-, get-wise- and get-healthy-quick schemes, "riskless" house flipping. This leads m ...

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Why I’m Betting Against Berkshire

by InvestingMacro Trends

In 2008 Warren Buffett made a bet against active investing, or more specifically the active-active, triple-fee side of investing, the hedge funds of funds. This group charges fees for placing money with hedge funds, who typically charge their own two types of fees. hedge fund's ability to pick funds that would outperform the S&P 500 index. After 10 years the S&P 500 beat the basket of hedge funds of funds by 3.5x (126% return vs. 36%). Longbets.org, is an "arena for accountable predicti ...