Happy Friday! There are more good news articles, commentaries, and analyst reports on the Web every week than anyone could read in a month. Here are the seven most fascinating ones I read this week.
Warren Buffett has loved See's since he first tried it in 1971, after hearing about it from his West Coast colleague Charlie Munger, who in turn heard about it from Robert Flaherty, an outside investment counselor at Blue Chip Stamps, a trading-stamp company Berkshire had invested in the year before. Munger and Buffett now say they were stingy in their initial offer, but Munger's friend Ira Marshall convinced him it was an unusual company, worth spending more to get. "Ira really shamed us," admits Munger. "Warren and I were too cheap." So Munger persuaded Buffett to buy. They paid up.
2. Quantity vs. quality
Fascinated by China's blistering growth? Always remember what your grandmother told you about quality over quantity. Writes the New York Times: "One of the longest bridges in northern China collapsed on Friday, just nine months after it opened, setting off a storm of criticism from Chinese Internet users and underscoring questions about the quality of construction in the country’s rapid expansion of its infrastructure."
3. Believe in the boom
Analyst and author John Mauldin opens up about why the new American oil boom makes him optimistic about our future:
As it turns out, we have found so much natural gas and oil in this country, with the new procedures and the new technology, that we can become energy independent in less than ten years, maybe even by the end of the decade.
If we start exporting natural gas, which we will in less than four years, from McAllen Texas there will be the first LNG terminal, just the one in McAllen is going to produce $70 to $80 billion a year of positive trade balance.
If we start exporting value-added natural gas, in the form of fertilizers and plastics and other products that you make from natural gas, we could have a positive trade balance in less than ten years. That would be a shock to the world. Nobody sees that coming.
That would make the dollar so remarkably strong, when combined with the balanced budget, that we would actually deserve to be the reserve currency again. America could be the America that we all think that it should be in our mind, that we would like it to be … I think America really could have our finest years in front of us again.
4. What's luck got to do with it?
Finance blogger Felix Salmon responds to a paper by Nassim Taleb arguing about the role luck plays in the financial industry:
The professions you really want to avoid, after reading Taleb’s paper, are not financial but rather creative. Where do you find millions of people all trying to succeed against the odds? Just look at how many bands there are, how many aspiring novelists, how many struggling artists. Nearly all of them think that if they create something great, that will improve their chances of success in their field. But given the sheer number of people they’re competing against, and given the fact that the number of breakout stars in each field is shrinking rather than growing, the fact is that just about everybody with massive success will have got there by sheer luck.
5. Tough business
Financial expert John Standerfer argues that investment management is the toughest profession in the world, and without knowing it makes a great argument for indexing:
Benchmarks are the most ferocious of competitors. They show up for work every day. They never get sick. They don’t take vacation. They are always 100% invested so their results are continuously compounding. Most importantly, they’re not aware of their own performance. The S&P 500 will never enter the 4th quarter feeling it needs to really press to have good numbers for the year. Nor will it take December off to “lock in” a good year … This inconvenient truth is like a little voice in the head of every successful investor -- “Am I really good at this or have I just been lucky?” A voice that never goes away as it only takes a couple bad years to destroy an lifelong track record.
6. Home-field advantage
Many investors have flocked to mega-multinationals like Johnson & Johnson and McDonald's because they offer international exposure, where -- thought goes -- growth is faster. But The Wall Street Journal points out that on a whole that's becoming less so:
U.S. companies are making money at home despite the volatile global economy. Domestically earned profits of nonfinancial firms rose to $1.1 trillion in the second quarter, the fifth straight quarterly increase. Profits from Europe, China and the rest of the world have been uneven, dropping in the first quarter before edging higher in the second.
7. A public service
Ryan Chittum of the Columbia Journalism Review points out a reoccurring point: Go on CNBC criticizing too-big-to-fail banking giants like Citigroup (NYSE: C ) and Bank of America (NYSE: BAC ) , and the hosts will ridicule you like a child. But when the actual bankers who nearly destroyed the economy go on the program, it turns into a love fest between hosts and guests. Watch his excellent montage of clips here.
Enjoy your weekend.